The Big Bailout of the Eurozone (Another crisis coming? - Seriously)

[Bogball XV]

It seems that i was a little premature with criticism of the judiciary, this was the right decision and carroll's argument and indeed 'business plan' was a joke (from what i have heard about it).  It seems as though ACC will be the big winners here, it's hard to see any of the others allowing a receiver to be appointed and presumably one of the big 2 will purchase ACC's interest.
The interesting thing here though is that perhaps this same situation will be played out all over the country over the next month or so, could we have many of the smaller lenders try and extricate themselves in this way from their various loans?  If NAMA weren't so near we probably would.

[Declan]

business plan' was a joke (from what i have heard about it)

Must have had consultancy from Albert the original one pager man. Yep from what I heard his business plan was all of one page. The arrogance of these guys is unreal

presumably one of the big 2 will purchase ACC's interest.

Agree 136 million is chicken feed compared to their exposure and seeing as they have allowed interest to be rolled up for up to 7 years in some instances.

Even better article
http://www.finfacts.ie/irishfinancenews/article_1017303.shtml

[Billys Boots]

It's going to be a long winter. 

[Declan]

http://www.irishtimes.com/newspaper/opinion/2009/0813/1224252497177.html

What does it take for people in this country to get angry??

[Billys Boots]

What does it take for people in this country to get angry??

There's no point in people being angry until General Election day.  It's the only opportunity we get to express our feelings in a way that matters - and what happens.  We get 18 months of promises that we're (collectively) stupid enough to swallow, despite all the evidence to the contrary.  We deserve everything we get. 

[lynchbhoy]

This could get incredibly messy.

I suspect few people understand residual property valuations but we are going to hear a lot about them in next twelve months. NAMA will be doing little else but looking at them.

I still cant believe that there has been no serious discussion amongst politicians about the impact of fiscal policy on residual property value.  

If they didnt want to take banks into public ownership then residual value of property could have been increased by scrapping VAT and stamp duty ( it could always be reintroduced later) . This would have improved bank and potentially developer positions ( although this could have been closed off with a special windfall tax if any had profits resulting from the change) . The unintended consequence might have been a further fall of 20% in second hand homes - but this will happen anyway IMO.

There are no institutions needed to implement these changes but no political will ( or wit) to cut these taxes . 

The commission on Taxation report out in September, i think, will be calling for the scraqpping of stamp duty and the introduction of a property tax using price band widths, a bit like car tax and engine sizes.  Again like bord snip these findings will be made public and will come into play in Autumn's budget. The commissions report will no doubt be used by the government to say its not us who are making the changes but the experts on taxation.

was expecting that there will be calls for the dropping or at least a big reduction in stamp duty.
It would make sense in a lot of ways.

[lynchbhoy]

business plan' was a joke (from what i have heard about it)

Must have had consultancy from Albert the original one pager man. Yep from what I heard his business plan was all of one page. The arrogance of these guys is unreal

presumably one of the big 2 will purchase ACC's interest.

Agree 136 million is chicken feed compared to their exposure and seeing as they have allowed interest to be rolled up for up to 7 years in some instances.

Even better article
http://www.finfacts.ie/irishfinancenews/article_1017303.shtml

these guys have been used to not having to jump through the hoops and very little in safeguarding-esque checks to ensure all doesnt go belly up, so obv still operate in that way.
The legislation was a joke (see fnancial regulator and his regulations ! ! ) but some people like Judge Kelly are making a stand for the people !
Fair play to him.

[tyronefan]

not much of a stand for the people, only thing that happens here is that acc get their money which goes out of the country and the rest of the banks are covered by nama which means that the tax payer picks up the tab.

By him going out of business means that the subbies or suppliers will not get their money

If anybody is going to get their money the only way it will happen if at all is to let the company try to trade out of this.

[Declan]

By him going out of business means that the subbies or suppliers will not get their money

But the banks have already taken care of a lot of his creditors.

The reality is that our Dept of Finance and Minister haven't a f**king clue what they are doing and we are completely banjaxed for years to come. some relevant excerpts from Finfacts this morning

Lenihan, NAMA versus the "leave it alone liquidationists" or potential saviours of the Irish economy

Finance Minister Brian Lenihan announced in late July, before heading off on a month's holiday, that he would disclose on September 16th, the pricing mechanism for the toxic property assets/loans, which will be transferred from Irish banks to the planned "bad bank" NAMA (National Assets Management Agency). He said value would be based on "long term economic value," but while he could dismiss opponents of the plan  as "leave it alone liquidationists", like a man trying to maintain a beach footing in the face of an incoming tide, the ground is also shifting on the NAMA value issue. The opponents of the current plan may well have done a significant service for the nation, by the time the Department of Finance returns to the issue later this month.

While a Department of Finance spokesperson dismissed the Supreme Court refusal on Tuesday, to grant the Zoe group, which owes almost €3 billion to its lenders, court protection, as having no consequence for the NAMA process, it would be absolutely bizarre if that turned out to be the case.
Given what was at stake, the Supreme Court was presented with a one page valuation summary and a claim that a huge deficit could be converted into a profit in 3 years.
UCD professor Karl Whelan writes in the Irish Times today:"... it could be argued Carroll's property empire might be in worse shape than those of other developers. It seems perfectly possible, however, the opposite is the case. His properties mainly consist of Dublin projects likely to get developed in years ahead. Consider, in contrast, the position of those developers who have pinned hopes on developing the proverbial field outside Mullingar."
How could Lenihan  support a low discount on the loans, if a significant number of developers are so under water that his name could be linked for decades to a long period  of economic stagnation?
€90 billion worth of loans is a big gamble to assume, where individual developers may end up having a smaller so-called "haircut" than the taxpayer?
The Irish Independent reports today that members of the Green Party are increasingly uneasy about the NAMA plan and while the Green leader John Gormley, is still happy to remain on Planet Bertie, the NAMA deal would likely put the tin hat on the Faustian bargain, which he agreed with then Taoiseach Bertie Ahern, in 2007.

In the third volume of The Memoirs of Herbert Hoover: The Great Depression, published in 1952, the former president tried to shift blame for the failure of public policy to others, some of them, by then dead.
He wrote in respect of his Secretary of the Treasury, Andrew Mellon on a conversation, which the two apparently had in 1931, when Mellon was 76 years of age: "...the 'leave it alone liquidationists' headed by [my] Secretary of the Treasury Mellon, who felt that government must keep its hands off and let the slump liquidate itself. Mr. Mellon had only one formula: "Liquidate labor, liquidate stocks, liquidate the farmers, liquidate real estate." He insisted that, when the people get an inflation brainstorm, the only way to get it out of their blood is to let it collapse. He held that even a panic was not altogether a bad thing. He said: 'It will purge the rottenness out of the system. High costs of living and high living will come down. People will work harder, live a more moral life. Values will be adjusted, and enterprising people will pick up the wrecks from less competent people'..."
Following the information provided by Zoe's Liam Carroll, to the Supreme Court, even though skimpy, it looks likely that there will be some significant liquidations. However, the argument of economists such as Karl Whelan, Brian Lucey and Patrick Honohan, is not that the banks should not be bailed-out with the State having an upside potential as happened in Sweden in the 1990s, but the current plan looks like a bailout of developers, with a  taxpayers likely exposed to a long period of losses.
Tolstoy's opening sentence of his classic novel, Anna Karenina: "Happy families are all alike; every unhappy family is unhappy in its own way...," may be true but big property crashes have a number of consistencies. One is that when a crash follows a big boom, it takes many years for a market to recover. 
TCD professor Brian Lucey wrote in the Irish Times last month: "OECD evidence suggests that bubbles deflate in about twice the time that they inflated. A reasonable estimate of the Irish property bubble would be that the inflationary period was the four or five years prior to 2007. That would imply that we are nowhere near the bottom and that we could in fact see at least another three or four years of declining prices. Purchasing at current market values might then be overpaying for these assets. This is reinforced by other OECD research that suggests that nominal property prices can take upwards of 15-20 years to recover to their bubble peak. This would suggest that it may be 2030 or thereabouts before we see prices back to 2007 values."
Again, given our peak at 2007 we have to look forward to NAMA recovering peak valuations at around, hmmm... 2026... But wait - not all corrections were steep enough to match ours... so let's isolate those that were:
   Australia 1980s: 18 years;
   Finland 1990s: 16 years;
   Germany 1970s: 36 years;
   Italy 1981: 29 years;
   Japan 1990: 20 years;
   Netherlands, 1978: 21 years;
   Norway 1987: 17 years;
   Sweden 1979: 31 years;
   UK 1973: 15 years
Which yields an average of 22.6 years, pushing our recovery to beyond 2030. By this standard, a break even value for NAMA should be based on something closer to 15-16 years, if we are to take a 20-25% haircut on current book values of the loans."
Finfacts said in July that residential site costs as a percentage of total selling costs were about 15% before the boom in Ireland and the US.
As in the US, site costs moved towards 50%.
A US Federal Reserve study on earlier crashes, says it took a full ten years for the real land price index to return to the level at its previous peak in many cities. In a number of large cities - - including Los Angeles, Philadelphia, Providence, RI, and Sacramento - - real land prices did not reach their 1990 peaks until 2001 or 2002, well into the recent housing boom.
So with domestic funding impaired for at least a decade and the UK also struggling with debt, how will the debts be repaid if projects cannot be completed or started?
NAMA will be able to borrow up to €10 billion but given the length of time, it will take for the property market to return to balance, it is likely to be primarily an undertaker.
The national debt was €65 billion at the end of June, up from €50 billion last December.
The one known known is that it is going to get much bigger. As for the unknowns, decisions taken in coming weeks, will be crucial

[ludermor]

TF a lot of subbies have already gone bust on the back of developments on hold by Carroll, the job beside the Point Village has taken 3 subbies that i know of. Carroll was paying 60 cents in the euro 18months so i have no idea what he has been paying since then, i was talking to 2 subbies whose heads were wrecked at teh time as to weither to accept the offer ( it was tabled as a take it or leave it) , one of them took it against his better judgement at the time but it turned out tot he right move, the other lad didnt take it and i havent heard from him since, no idea if he survived

[muppet]

My furry little head hurts as there isn't enough brain to get my head around NAMA. I would like those posters who even half understand it and can peek into the future to give me some idea what will happen.

Here is what I think I have at the moment:

Thanks to the banking crisis the banks each have dangerous levels of loans versus the amounts they each have on deposit. Realistically the banks can't start lending until the ratio of the loans to deposits is at a safer level, this is also now every governments policy including our own. Despite silly calls by various ministers for banks to start lending again this can't and won't happen to any viable level until something is done about the aforementioned ratio.

The banks have massive amounts of developer debts on their books which are almost certainly not going to be serviced and are impossible to put a value on. These debts are ensuring that the loan to deposits ratio remains the major stumbling block to banks lending again.

If the banks can't or won't lend the economy has no chance of growing and we get all the associated problems such as deflation with the ensuing unemployment etc.

So the government decided on the 'Bad Bank' strategy to take all these (property based) toxic debts off the banks. This should in theory dramatically improve the loan to deposits ratios of the various banks and they should start lending again which will hopefully stop the economy contracting and begin to grow again.

Way way down the line, when property values recover, NAMA on behalf of the government will recover the cost of the exercise.

Thus they are going with NAMA.

That is where my very basic understanding completely runs aground.

The logistics of NAMA (some sort of bonds issued by the Government to the banks), the staggering size of NAMA (they are talking about €90 Billion), the attempt by NAMA to set a floor on property prices (can a government do that successfully and still have an open market for property?), the fact that extreme right wingers like Tom Parlon are behind the nationalisation of huge parts of land of the State, the likelihood that property prices won't recover for a very long time and the fact that we as taxpayers will have to pay for all of this for up to three decades has my head spinning.

Some developers are whinging and threatening to sue all round them but if at the moment they can't pay their debts, and their assets are worthless, how can NAMA valuing their assets at an artificially inflated figure be a bad thing? The only logic I can see is that at the moment they have the banks over a barrel and are repaying nothing and are just hoping for the best. Thus they don't want NAMA to happen which will force them to crystallise their losses even if only to an artificial level. (If this is what they are at they should be shot for treason). Am I missing something else?  

Add in the fact that this scheme has been dreamt up by the same people who lead us blindfold into this mess. Yes there were international factors, but our great leaders have created our own uniquely Irish flavoured mess. How can we trust them now?

Finally, what happens if NAMA doesn't work? Obviously the banks will have to be nationalised, which the last big gamble before NAMA (i.e. the bank guarantee) was supposed to prevent, but what happens to the property values and what happens to the taxpayer?

If the bank guarantee was a huge gamble, is NAMA double or quits?

[The Wedger]

Nama flowchart 

[comethekingdom]

Excuse my ignorance of the whole thing but can the Government set up a bank of its own to lend to ordinary honest folk who want to run their businesses and are not in for the quick buck like the greedy bastard developers?  Then, let the banks in the dire shite that have no one to blame only themselves take all their developer cronies to court, take everything they have left off them, put them on the dole and if that all dosent work out just go to the wall peacefully and leave us all alone?
That way everybody gets what they deserve - and the poor ordinary PAYE workers wont be sorting ou this mess for decades to come!

[tyronefan]

According to a friend of mine who works for one of the major banks, he told me that the banks have loans out at a ratio of 5 - 1 ( 5 euros loan out for every 1 euro on deposit). The industry standard is 2 - 1 and he reckons that the banks will not lend out money until they come close to that figure again.

Nama will bring money into the bank and bring the ratio down but there is nothing in nama to ensure that the banks will start lending again.

[bcarrier]

As excellent as the Nama flow chart is there are a few loops missing.

There should be two from "Fortunes" bubble

one back to "Greedy bastard banks" bubble with " squandered by buying shares in"  and
another to " overvalued properties " with word "squandered " there again.

Anyhow the government and bloated public sector get off too light in this analysis . The activities of the greedy bastard developers generated  tax receipts ( stamp duty, vat, CGT) that were used to fund unsustainable and continuing public sector costs.