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

[Declan]

Green Party obliterated by great Nama denial


FINTAN O'TOOLE

The nice gestures in the programme for government are trifling compared with the absurdities it supports

ONE OF the nice things about writing a column in Ireland is that you don't have to work very hard for your metaphors. If you wanted to encapsulate the death of the Green Party in a little moral tale, you'd be hard put to come up with a better one than John Gormley's ostentatiously eco-friendly trip to the UK on the ferry, after which he was picked up by a limo that drove from London to Holyhead at a cost of €2,200. If you think of the ferry as Green principles and the limo as Fianna Fáil culture, you have a perfect image for the charade that was played out at the weekend.

The renewed programme for government has lots of ferry moments: lovely stuff about education, political reform, public transport and the green economy. It can sail happily over a sea of doubt until it reaches the far shore of political reality, where it will be picked up by the Fianna Fáil limo called Nama. When all the aspirations and all the gestures have been left behind, it is Nama that will shape the real world in which power will be exercised. And it is driven by Fianna Fáil and everything it represents: the attempt to shore up a failed system using sacks of public money as sandbags.

To understand the extent to which the Greens have been reduced to gesture politics, let's consider one thing that is in the programme and two that are not.

The thing that's there, the fig leaf to cover the Greens' nakedness, is the inclusion of a levy on the banks in the event that Nama makes a loss. It is a triple sham.

Firstly, the levy was already part of the Government's proposal. Secondly, it contains an obvious escape hatch: it will be "carefully judged so as not to disrupt the stability and sustainability of the banking system". In other words, it will not be imposed if it does any real harm to the banks' profits and share prices.

Thirdly, it is entirely meaningless in relation to the very worst aspects of Nama, the pouring of public funds into the zombie institutions Anglo Irish and Nationwide.

These dead banks, which account for half of the liabilities that Nama will assume, will never be able to pay a levy because they will never function as commercial banks. And Anglo is, in any case, in public ownership – we would be paying a levy to ourselves.

Now let's look at the two things that are not in the programme. Both are completely central to any idea of sustainable development. The first is the implementation of the Kenny report on the control of building land by allowing local authorities to buy it at the agricultural price plus 25 per cent. It has been an absolute mainstay of Green policy since the party was formed. There's not a word about it in the programme. What we get instead is a wind-powered exhalation about "a long-term strategy of land acquisition in order to meet at a reasonable price the needs of both market and non-market providers".

The second non-appearance is the urgent issue of upward-only rent reviews for commercial property. This has to be tackled right now: ludicrously high rents are closing Irish businesses every day and throwing workers on the dole queues. The Greens have been going on about this for ages. All we've got on the table is a very weak proposal to outlaw the practice for new leases. What have the Greens, and the Irish retail sector, got to show for all the posturing? Nothing.

And why is nothing happening on these two crucial issues? Because change would not suit the Nama strategy. Implementing Kenny would bring down long-term property values, while Nama needs them to grow. Banning upwards-only rent reviews would expose one of the big flaws in the Nama strategy. Brian Lenihan has repeatedly pointed to the "health" of commercial rents as a sign that the property market will bounce back.

The reality that all of this is based on an absurd insistence that rents cannot be negotiated downwards has to be denied.

The Greens are now entirely complicit in this denial. In a week when the value of the Irish Glass Bottle site in Dublin was officially downgraded from the €413 million that was paid for it to just €60 million – a fall of 85 per cent – the party is telling us, as the programme puts it, that "the Government's approach to asset valuation within the Nama initiative is carefully balanced and reasonable".

Putting what remains of Green ideas and idealism into a zombie government is a waste of political capital in the same sense that putting €30 billion of public resources into a zombie bank (Anglo) is a waste of financial capital.

For all the nice gestures, it will be just as productive. The Greens are now in that publicly funded luxury limo, sitting comfortably on the road to perdition.

[bcarrier]

http://www.irishtimes.com/newspaper/opinion/2009/1013/1224256508947.html


Turning bank debt into equity will save us from Nama ruin

MORGAN KELLY

History shows Nama-style bad banks are profoundly corrupt and corrupting institutions. If Nama didn't happen, the alternative would involve minimal cost to the taxpayer and banks would manage their business without political interference

WHILE MOST economists by now simply dismiss Brian Lenihan's utterances on the economy as "not even wrong", this is to miss the Minister's almost eerie ability to predict exactly the opposite of what is going to happen. Merely to contradict Brian Lenihan is virtually to guarantee that you will later be credited with supernatural prescience.

Who else, as Irish bank shares plunged 13 months ago, could conclude: "Our banks uniquely have weathered this storm . . . We are in a zone of financial stability in a very troubled financial world."? Two weeks later, having been panicked into his catastrophic bank liability guarantee, the Minister assured us that we had "the cheapest bailout in the world so far", and six weeks later averred that: "It is not the function of the Government to fund or bail out the banks."

The effortless miscalculations, the assured non sequiturs, the lofty indifference to facts: all reveal Brian Lenihan as a master of what Princeton philosopher Harry Frankfurt defined succinctly in his 1986 paper, On Bullshit .

The Nama legislation, as expected, piles up this material on an Augean scale. Prices have fallen 47 per cent; the long-term economic value of property is 30 per cent below its peak value; the loan-to-value ratio is 77 per cent; prices only need to rise by 10 per cent in 10 years for the State to break even.

To subject these almost poetic flights of ministerial imagination to any sort of rational analysis will seem to many like vandalism, but that is what God made economists for.

First, the estimate that prices have fallen 47 per cent. The reality is that prices can only exist when there is a market, and the market for commercial property and development land has disappeared.

A less futile exercise is to ask how much Nama would have cost at the end of similar credit-fuelled price bubbles. A decade after their peaks, Tokyo land prices had fallen by five-sixths, while Irish farmland, adjusted for inflation, had fallen by three-quarters. Had Brian Lenihan bought €77 billion of either, applying the proposed Nama discount of 30 per cent, he would have lost €35 billion-€40 billion on our behalf, or roughly €20,000 per taxpayer, and that is before adding interest.

At a quarter of national income, Nama would dwarf the cost of previous bank bailouts, which varied from about 3 per cent of GDP in Sweden to 14 per cent in Finland and Japan.

Most baffling of all the Nama numbers is the proposed discount of 30 per cent, implying that the "long-term economic value" of property is at 2004 prices. Not one shred of evidence is offered for this assertion, the keystone of the Government's strategy.

At first, I thought that this mystical 30 per cent number embodied Fianna Fáil nostalgia for a vanished era of innocent greed; a hope that we would wake up one morning and find ourselves back in 2004 forever, basking in the benevolent gaze of Bertie Ahern and Seán FitzPatrick. The reality turns out to be a lot more mundane. The EU simply forbade Lenihan to pay any more. This is not through any dismay at seeing Irish taxpayers fleeced by their Government, but for fear that they will be stiffed into carrying out an Iceland-style rescue here.

The figure of a 77 per cent loan-to-value ratio is equally fanciful. It will take years for the courts and Fraud Squad to disentangle multiple personal guarantees and imaginary collateral. The situation in Anglo Irish Bank appears particularly grave.

Finally, there is the assumption that the Irish Government can continue to borrow forever at low rates from the European Central Bank. However, the ECB is making no secret of its dismay at being turned into a credit union for feckless Micks, and is anxious to end such emergency lending facilities within the next year.

Once the ECB slams the window on its fingers, the Government will be forced to borrow at market rates of 5 per cent or more. In the next decade, this will add another €25 billion or so to taxpayers' losses from Nama.

Property speculation was a mania that swept every level of Irish society, from hairdressers buying apartments in Bulgaria to dentists taking out second mortgages to join commercial property syndicates. Business owners were not immune to the lure of effortless wealth, and many borrowed heavily to gamble in property.

As one banker put it: "We are happy to restore their credit line as soon as they repay us the €15 million they borrowed to buy that land bank on the edge of town." The destruction of the Irish commercial class, who we might have hoped to be an engine of export led recovery as they were in the 1990s, is likely to prove one of the most enduring and costly legacies of the property bubble.

Forcing banks to lend to SMEs will only compound our problems. One condition of the Japanese bank recapitalisation in 1999 was that they lend to small firms, but the effect was to heap a second layer of non-performing loans onto existing property losses.

As well as being expensive, history shows Nama-style bad banks to be profoundly corrupt and corrupting institutions. After the financial crisis in 1931, the US, Germany and Austria all set up bad banks which turned into conduits for directing funds to politically connected enterprises.

Bad banks are the means for governments to choose which oligarchs will survive to emerge even stronger than before. They do not just happen to behave in a corrupt and anti-democratic manner: it is what they are designed to do.

And do not forget that, even after the crushing expense of Nama, Irish banks will still be seriously short of capital. Under the current, deliberately lax, international bank regulations, AIB and Bank of Ireland need capital of around €8.5 billion.

Financial markets, which assume that Nama will go through, value their existing capital at around €3 billion, and adding Government preference shares of €3.5 billion leaves them short about €2 billion each. Once stricter capital requirements are imposed next year (the so-called Basel 3 process), this shortfall will probably rise to €6 billion.

Nama then, will turn out to be expensive, corrupting, and inadequate. While the abject, almost endearing, eagerness of the Greens to please their Fianna Fáil masters means Nama is almost certain to go ahead, it is perhaps worth asking what would happen if it did not.

All that needs to be done is for ownership of Irish banks to be transferred to their bondholders. This process of converting debt into equity occurs sufficiently often in banking to have a name: resolution. Resolution offers a way for Irish banks to be adequately recapitalised at no cost to the taxpayer, and able to manage their business without political interference.

Under existing Irish corporate law, this transfer would be a recipe for centuries of litigation. That is why most other industrialised economies have, or are introducing, special legislation to resolve failing banks with limited judicial review. Particularly impressive is the UK's Special Resolution Regime introduced last February, which could easily serve as a template for similar legistlation here.

Instead we will get Nama. Brian Lenihan assures us that Fianna Fáil's monument to a decade of waste, corruption, and ultimate ruin will not be wasteful, corrupt, and ultimately ruinous.

Let us hope that, for once, he is not wrong.

[Caid]

NAMA won't be part of national debt
Tuesday, 20 October 2009 17:04

The cost of funding the National Asset Management Agency will not be added to the national debt.

The European Commission's statistical service Eurostat has accepted the Government's method of treating NAMA as an off balance sheet Special Purpose Vehicle (SPV), which will not be included in the figures used to calculate the national debt.

The €54 billion required to fund NAMA represents around 30% of gross domestic product (GDP), or economic output. On top of the very rapid increase in the Government debt as a result of borrowing to fund the budget deficit, the inclusion of the NAMA sum in the national debt calculation would have pushed the country's debt/GDP ration well over 100% next year.

AdvertisementUnder the EU stability and growth pact, countries are supposed to have a debt/GDP ratio of 60% or less. The Irish Government has been given five years - instead of the normal two - to get its debt ratio down to the target figures. Not having the NAMA money included makes that task easier.

The most recent Department of Finance estimate for Ireland's debt ratio is 59% for the end of this year, rising to 73% by the end of next year.

Eurostat's decision is subject to the setting up of certain entities which will be the legal holders of the NAMA assets, while NAMA will retain effective control and a veto on decision-making. These special purpose vehicles will include private equity.

The Minister for Finance Brian Lenihan welcomed the preliminary decision, but the department also pointed out that it did not change the fact that NAMA would increase the State's potential liabilities

From RTE

[Caid]

Another RTE article which notes, but doesn't describe in detail, how ARC will seek to generate money for foreign Pension Funds

ARC believed to have €3 billion in backing
  Tuesday, 20 October 2009 14:03
Asset Resolution Corporation, the new vehicle established to buy property loans from foreign owned banks, is believed to have commitments of about €3 billion from financial backers.

The company is targeting banks which are not covered by National Asset Management Agency.

Two big names in business have teamed up for this venture. Mark Duffy is the former chief executive of Bank of Scotland (Ireland), while Kevin Warren is one of Ireland's biggest property fund managers.

AdvertisementTheir new company will buy property loan portfolios from foreign banks in Ireland at a discount. Those banks could include Ulster Bank, Bank of Scotland (Ireland), National Irish Bank and ACCBank.

It is believed that ARC's funds will come from institutional investors such as British pension funds. Some of the money will be borrowed and could be borrowed from the banks the new company will be buying loans from.

Those investors will want to want to see a 15% return on their money in over a seven to ten year period. The new company will seek to take over loans early next year.

Foreign owned banks operating here will not be covered by the NAMA legislation as they are in receipt of assistance from other governments.

'As NAMA is unable to provide a solution that includes the foreign banks based in Ireland, ARC has been established to fill this gap. This proposition has allowed us to attract a considerable level of support from the international investment community,' commented Mark Duffy.

[bcarrier]

Read this please ....


http://trueeconomics.blogspot.com/2009/10/economics-21102009-ireland-most.html

It is shocking beyond belief. 51% of any upside in NAMA sold for less than 0.2% of the capital requirement.

[Caid]

Read this please ....


http://trueeconomics.blogspot.com/2009/10/economics-21102009-ireland-most.html

It is shocking beyond belief. 51% of any upside in NAMA sold for less than 0.2% of the capital requirement.

Interesting article

[Declan]

The Irish Independent also reports that an apartment block developed by former IRA hunger striker Thomas McFeely has been put on the market for sale in one lot for only €3m.
This works out at an average €100,000 per apartment - less than half the prices being asked for two-bedroom apartments in other developments at Mulhuddart in Dublin 15.
Located just minutes from the village on the Blakestown Road, the block contains 30 apartments, of which 24 are two bedrooms, three accommodate three bedrooms and three have one bedroom each.
The apartments were owned by Mr McFeely and his fellow builder Laurence O'Mahony, but they lost them a few months ago when ACC Bank appointed receiver Martin Ferris to recover its outstanding debts from the developers.
Repayment arrears of more than €600,000 had accumulated on their loan of €6.2m. The loan was secured against rents which the duo were collecting from the Mulhuddart apartments. It was also secured on 38 acres owned by Mr O'Mahony at Dunboyne, Co Meath.
In an affidavit resisting the application, both developers argued the loan was a 20-year facility and they had told ACC the arrears would be tackled through insurance monies due, following a fire at the Mulhuddart premises.
David Brown of HT Meagher O'Reilly, the estate agent who is handling the sale, says that the block comes with vacant possession and the fire damage affected only an area of the underground car park.
He is seeking one buyer for the whole apartment block, which is one of the reasons for the sharp discount on average apartment prices. It has already sparked interest from a few private investors.
Settlement
Now aged 60, Mr McFeely endured 53 days on hunger strike during the H-Block protests in which a number of hunger strikers died.
Some years ago he made a settlement of €9m with the Criminal Assets Bureau.
Earlier this year, solicitor-turned-property developer Noel Smyth brought legal action for €130m in damages against both the duo and developer Liam Carroll for alleged breach of contract, and loss of tax breaks and profits, relating to delays in the development of a section of the site adjoining The Square shopping centre in Tallaght.
Mr Smyth claimed that Mr McFeely and Mr O'Mahony had reneged on a deal to sell him the site.

[muppet]

The apartments were owned by Mr McFeely and his fellow builder Laurence O'Mahony, but they lost them a few months ago when ACC Bank appointed receiver Martin Ferris to recover its outstanding debts from the developers.

Is it just me?

[Declan]

I laughed at that one as well muppet. I'm sure it's just a coincidence!!

[muppet]

Alleged evidence of more lawbreaking at our esteemed Nationalised bank.

http://www.rte.ie/business/2009/1030/anglo.html

[Caid]

Named this in my top 3 threads so need to keep it alive...

The Irish Home Builders Association has said house prices have reached the bottom of the downturn. The organisation, which represents 1,500 home builders, says that new home prices have fallen on average by around 40%.

The association's Winter Housing Review and Outlook for 2009 says current prices are not sustainable and companies will not resume house building until prices reflect the cost of inputs and a reasonable return on investments.

The IHBA also claims that the level of unsold housing stock is being exaggerated and represents around eight months supply in normalised market conditions.

AdvertisementRural once-off houses will the only homes built this and next year according to Dominic Doheny, Chairperson of the Irish Home Builders Association.

He said that market recovery will be characterised by a strong regional influence, which will see Dublin and built-up areas recover more quickly.

The review says that in the last three years, Leitrim has had the highest number of house completions per head of population than any other county in Ireland. Leitrim had three times more houses completed per head of population than Wicklow.

The outlook claims that house price falls are higher than has been estimated up to now and have bottomed out.

The highest fall in prices mentioned in the report are 46% and relate to a development in Leixlip, Co Kildare in which one bedroom apartments fell in price from €250,000 to €135,000.

Dominic Doheny said a lot of builders are selling to create cash flow to meet borrowings rather than for profit. He said such an approach can not continue into the future.

He said no new houses would be built in the current environment and there is no incentive to start a new development given the market price situation.

[muppet]

http://www.breakingnews.ie/business/us-bank-closed-down-437038.html

US regulators shut down Ohio's AmTrust Bank, the fourth-largest American bank to fail this year.

They also closed five others, bringing to 130 the number of US banks to be brought down so far in 2009 by recession and mountains of bad debt.

The Federal Deposit Insurance Corp took over AmTrust Bank, based in Cleveland, with about $12bn (€8bn) in assets and eight billion US dollars in deposits. Its failure is expected to cost the federal deposit insurance fund an estimated $2bn (€1.3bn).



Oh the weather outside is Anglo,
Let it go, let it go , let it go.

[muppet]

http://www.breakingnews.ie/business/eymhqlojidey/

Govt may need to inject another €4bn into Anglo

09/12/2009 - 15:17:21
It is feared the Government may have to inject more cash into Anglo Irish Bank.

The nationalised bank may need up to €4bn next year.

It is said that it is money the Government hasn't allowed for in the 2010 Exchequer figures.

It has also been said that Anglo may suffer a €10bn loss on the money going into NAMA.



If that were to be the case we would have to put the entire sum saved in today's savage budget.....into Anglo Irish fukcing Bank next year.

[Rossfan]

Isnt that what the offensive cnuts wanted it for 
A Budget written by Bankers for w*nkers to announce to screw the plain people and help the greedy sc**bag *******ers who destroyed the best economy in Europe.

[mayogodhelpus@gmail.com]

Isnt that what the offensive cnuts wanted it for 
A Budget written by Bankers for w*nkers to announce to screw the plain people and help the greedy sc**bag *******ers who destroyed the best economy in Europe.

A yes forget the tens of thousands of private sector workers who will lose their jobs, who are no more guilty than private sector workers, people whose income already hit and most of whom where earning less than civil servants, a yes blame the bankers but I will continue to blame the wankers (Public Sector)