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

[passedit]

http://www.cnbc.com/id/30308959/?slide=16

[muppet]

http://www.breakingnews.ie/ireland/high-court-refuses-examiner-for-zoe-group-425870.html

Carroll group refused Examiner.

Now it appears that AIB and BOI will bail him out by relieving ACC of their debt in return for not winding up Zoe Developements. Of course AIB & BOI can do this because NAMA will then take those debts off them, at a yet to be determined inflated rate, and the taxpayer will be the guarantor.

Everyone this site with kids could you please thank them on behalf of the Developers and Bankers of Ireland. They mightn't say it publicly but they really are grateful your kids will be paying for their mess. 

[The Wedger]

http://www.rte.ie/news/2009/0911/carrolll.html

Judgment on failed Carroll application

Justice Frank Clarke has delivered his written judgment on the application for examinership by property developer Liam Carroll's Zoe group.

Mr Justice Clarke turned down the application yesterday.

In delivering his judgment, Mr Justice Clarke described prospects for the survival of the Zoe Group as at 'the further ends of optimism.'
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The seven companies in the Zoe Group had applied for the protection of the court following moves by ACC bank to recover loans of €136m.

The companies have combined debts of €1.2bn.

The group's original application was turned down by the Commercial Court and the Supreme Court.

Over the course of a lengthy judgment this afternoon, Mr Justice Frank Clarke outlined why he believed the companies did not have a reasonable prospect of survival, which is the statutory test for examinership.

He described as a 'significant flaw in the business plan', the fact that interest rates had been calculated to remain at just 1% over the next two years or so.

Justice Clarke said the evidence of economic experts suggested that rates would rise and that even a rise of 0.5% would add four million to the companies' interest bill.

He noted that even though the plan envisaged an interest moratorium for two years, it would still have to pay the interest when it emerged at the other end, which he said could have 'a devastating impact.'

Referring to the prospects for the property market in general, he said there was a greater downside risk to prices, at least over the next two years, and there were also risks to the rental income projected by the group.

On NAMA, Mr Justice Clarke noted that in excess of 50% of the group's banking debt could be covered by the scheme and while it was impossible to speculate how NAMA would approach the loans, he said the overall interests of NAMA would not be dissimilar to a commercial bank, namely to recover as much money as possible.

Mr Justice Clarke deferred making an order on the judgment until Monday and also adjourned winding up proceedings by ACC until the same date.

[muppet]

This was the official logo for the UK Office of Government Commerce.

Our Government should adopt it for NAMA but rotate it 90 degrees clockwise.

[muppet]

The loans taken over by the agency may include those given to developer Liam Carroll by Anglo Irish Bank Corp. to build its new headquarters on the north bank of the Liffey.

With Carroll now seeking protection from creditors amid debts of 1.3 billion euros, the building lies unfinished. Anglo, owed about 30 million euros, is offering another 8 million euros to allow the developer to complete the building

You really couldn't make this up.

The bank Fianna Fáil couldn't allow to fail and so have pumped billions of taxpayer's money into, is still going ahead with it's new headquarters, built by none other than Mr. Liam Carroll.

Mr. Carroll of course is in a spot of bother at the moment trying to hang on for NAMA so the subsidised Anglo is offering him our money to see him through to when he can call on more of our money.

[moysider]

This was the official logo for the UK Office of Government Commerce.

Our Government should adopt it for NAMA but rotate it 90 degrees clockwise.

Great spot Muppet. Class.

[muppet]

http://www.breakingnews.ie/ireland/anglo-irish-bank-to-lay-off-hundreds-of-staff-427246.html

Anglo Irish Bank is reportedly planning to lay off hundreds of staff as part of a major cost-cutting programme over the coming month.

Reports this morning say the bank's 1,700 employees had an average pay packet of more than €100,000 last year, including share schemes and pension contributions.

This made Anglo staff the highest-paid in the banking sector.

The Government had to nationalise the bank in January to prevent it from going out of business and must now file a restructuring plan with the EU in November in order to comply with state aid rules.

[Main Street]

Average salary figures should be taken in the context that most of salaries are under €30K pa.

[PadraicHenryPearse]

With IL&p not having big developer loans and not being part of NAMA, how does NAMA help them? Will they merge with Irish Nationwide and EBS? (forced to by the govt)

If people are so angry with AIB, BOI etc. why not transfer their accounts to PTSB or another bank not in NAMA as a way to show their anger.....

Some things that i was wondering, in Thailand at thefor the last 6 mths so out of touch with all back home

[muppet]

1,700 employees with an average remuneration of €100,000 would mean a total cost of €170,000,000 annually, paid gratefully, by the taxpayer (one way or another).

This to the people who, more than anyone else, may have put us on the road to bankruptcy.

[Lecale2]

With the budget debate within Govt now back on after the Lisbon vote will the current Govt have the stomach for the cuts outlined in the McCarthy report? Those cuts aren't even enough if you look at the balance of payments.

I can't see the Greens and back- bench FF TDs voting for half of the cuts suggested.

FG/Lab don't have any real suggestions on how to balance the books and ICTU are likely to be leading strikes before long.

Politicans are trying to force voters to take the medicine with the threat of the IMF coming in to run things. Would the IMF be that bad?

It might be an easy option for politicans to get them in and let them sort the mess out and they can take the blame for the difficult decisions. What would the IMF do any way?

[Caid]

Two recent articles from UCC Economics Lecturer on NAMA.  His points on overpaying for the property loans don't seem to account for the ill feeling that people have in terms of "bailing out" the big property developers.  Just wanted to reignite this thread as it the most important thread on the Board


There remains great controversy surrounding the proposal to purchase property-related loans from banks at a price that exceeds their current market value. In the eyes of many commentators, this 'overpayment' represents a speculative misuse of taxpayer funds in the hope that underlying property values will recover within a reasonable timeframe to recoup the loss.

A counter-proposal, favoured by many economists and politicians, involves the government paying no more for these loans than they are worth today and letting the existing capital providers, i.e. shareholders and bondholders, absorb the loss. This argument has intuitive appeal in so far as taxpayers are not required to overpay for impaired loans while banks and property developers are forced to realise their losses fully and immediately.

However, it is a facile argument, in my view, to dismiss deliberate overpayment for impaired assets as foolhardy. To be sure, in a properly functioning market with plenty of buyers and sellers, the lack of justification for paying anything over the current market price is self-evident.

But in case we needed reminding, the international banking system is not functioning properly. Indeed, without extensive injections of public monies, the system would already have collapsed. Where there is no market for property-related loans, it follows that there is no current market price. As such, the debate around the correct price for these assets is somewhat of a red herring.

Better, in my opinion, to shift focus away from the moot question of 'overpayment' and consider the merits of the NAMA bill from a taxpayers' perspective in the broadest sense.

In essence, NAMA proposes to borrow money by issuing bonds which banks can then pawn at the European Central Bank (ECB) for cash. Because the ECB is effectively underwriting the deal, the Irish government is in a position to remove property-related assets from banks' balance sheets and replace them with government-backed bonds.

This arrangement indirectly opens up a credit line between the Irish government, operating via NAMA, and the ECB. In effect, the ECB has come to the rescue of the Irish taxpayer. Given our current fiscal position and the significant size of the banking sector, bond markets would not touch Irish bonds if the ECB did not stand ready to accept newly issued government paper as collateral against cash advances.

The more pertinent issue for the Irish taxpayer, now, is how the additional borrowing requirement under NAMA will affect our international creditworthiness and whether Ireland can continue to meet its borrowing costs without having to aggressively raise taxes in the future.

In this regard, we can only hope that renewed commitment to fiscal prudence and willingness to take decisive action in relation to impaired loans continues to be reflected in relatively benign borrowing costs for the government.

If the investment into the banks is successful in re-igniting productive lending in the economy, the fiscal position can be expected to improve in line with the global cycle.
Thus, the real bet for the Irish taxpayer is whether NAMA will indeed be successful in quickly getting credit flowing in the economy and that this will be a significant support to economic activity and the fiscal position in time.

With the ECB on board, international bond markets should remain reasonably comfortable with the NAMA proposal as evidenced by the narrowing of Irish sovereign bond spreads on its announcement.

Alternatively, the government could aggressively mark down the value of impaired loans which would generate significant losses for existing shareholders and bondholders. Many support this idea on the belief that the providers of risk capital should be made to bear significant losses so as to prevent moral hazard.

However, excessive dilution of existing bank capital is not sensible. By definition, access to private funding is inadequate in a credit crunch and the government is forced to become capital provider of last resort. Therefore, an overly aggressive write down in the value of existing equity and bond holdings simply means that the taxpayer has to provide the residual funds needed to re-ignite bank lending.   

To limit the cash commitment up front, the government could decide to bear all future banking risk through nationalisation. But why do this voluntarily, unless one believes that the state is best positioned to take responsibility for a banking sector balance sheet that has ballooned to over €400bn. Moreover, nationalisation does not appear to have the support of international capital markets given that default protection costs more for Anglo Irish Bank than its privately held peers.   

It is also worth noting that much of the existing private capital in Irish banks comes from domestic pension funds. Any decision to sharply devalue existing bank capital is likely to significantly dilute Irish pension fund returns. It is not the 'fat cat' investors that would be most affected but ordinary taxpayers and future retirees.

In addition, bank debt is widely held by other financial institutions, both domestic and international. A unilateral government decision to default on existing bond holdings risks damaging Ireland's international credit status, a cost which would ultimately be borne by the Irish taxpayer.

The NAMA concept is far from perfect. It is expensive, risky and difficult to understand. However, because it has the broad support of the ECB, the IMF and international capital markets, I believe that it does present us with the best opportunity to quickly re-ignite the credit flow in the economy at a manageable cost.

The primary objective must be to get the banking system back on its feet so that future profits from the sector can be levied heavily to sufficiently compensate the ordinary taxpayer. 

Don Walshe lectures financial economics in University College Cork.



Throughout the NAMA debate, there has been a great willingness on all sides to focus exclusively on future property values as the primary means of generating a return for the beleaguered Irish taxpayer.

Inevitably, such a narrow focus has resulted in fierce protest to what is perceived as a €54 billion gamble of taxpayer money on future property values. Such a blinkered view of taxpayer exposure, in my opinion, remains a highly frustrating aspect of the public discourse, as our attention is continually diverted from the more important issue of the country's medium-term economic prospects.

If the NAMA legislation were to be properly framed in a wider economic context, it might not appear to be such an unholy waste of taxpayer money. Moreover, in this context, the perceived transfer of wealth from taxpayers to private interests is likely to be significantly overstated by its opponents.

First of all, NAMA does not have to make a profit to be successful. NAMA simply proposes to exchange borrowed money for bad loans. If this were a profitable venture, the private sector would have taken care of these loans long ago.

It so happens that previous 'bad' banks, such as the Resolution Trust Corporation in the US and Securum in Sweden made a profit but this should not be seen as NAMA's raison d'etre. There is simply no way of telling at this point what property prices will do in the future.

Similarly, NAMA is not specifically designed to make money for the taxpayer. Instead, it should be regarded as means of limiting the cost the taxpayer arising from twin crises relating to banking and government finances. The ultimate cost to the taxpayer will depend on the extent to which the economy and tax revenues benefit from the intervention. 

If international lenders have more confidence in Ireland's fiscal position post-NAMA, then the burden on Irish taxpayers can be expected to ease over time.  Already, Irish borrowing costs on international markets are falling.

To price bad loans with the sole objective of making NAMA profitable, effectively turns the Irish taxpayer into a property speculator. With the taxpayer seeking to pay as little as possible for the loans, public motives would be no different from those of any private sector investor, rendering the exercise utterly pointless.   

To put the NAMA intervention in context, we must recall that in September 2008, the Irish government wrote a €100 billion insurance policy for Irish deposits and other liabilities. With the stroke of a pen, this move created a contingent liability for the Irish taxpayer which amounted to twice the country's outstanding national debt at the time.

Undoubtedly such intervention was necessary but the effects on the country's credit quality did not go unnoticed by international markets. Ireland's borrowing costs soared, thus creating an automatic medium-term burden on Irish taxpayers given the need to radically tighten fiscal policy.

The real gamble with NAMA amounts to whether this burden can be eased significantly through time if the taxpayer goes guarantor on a €54 billion loan at cheaper than market rates. Of course it is a significant gamble with taxpayers' money. It should not, however, be seen in the narrow context of a gamble on property prices.

Moreover, if banks appear to be benefiting excessively from taxpayer guarantees in the future, there are many ways to recoup the social dividend involving tax levies or some other equity-related mechanism.

NAMA is a €54 billion gamble on the future of the Irish economy. Contrary to popular debate, the Irish economy need not always be about property values. I thought we would have learnt that much at least from the 'celtic tiger' era.

Don Walshe lectures financial economics in University College Cork.

[bcarrier]

If you are interested in the subject - and everyone who pays tax in the country should be - have a look at the board on the www.thepropertypin.com .

NAMA may have some advantages for the chosen few in development circles but it is above all a (massive) bail out of subordinated debt holders and shareholders within the banks by future generations of taxpayers.

It is a done deal so no point in stressing about it. Worry about the euro's strength against the £ instead.

[Main Street]

Don Walshe lectures financial economics in University College Cork.

Indeed, without extensive injections of public monies, the system would already have collapsed. Where there is no market for property-related loans, it follows that there is no current market price. As such, the debate around the correct price for these assets is somewhat of a red herring.

Is the debate over asset price a red herring?  Why does he say there is no current market price? Can the economist not get out a calculator and do some maths?
Market price for houses should have a relation to rational costs and purchase price should have a rational relationship to earnings/purchasing capacity.
House prices have been inflated, primarily in relation to building land prices.
Building land prices could soar because money supply was increased.
People could afford to pay the fantastic rise in prices, not because their earnings hit the roof but because money supply in the form of mortgages hit the roof.

What is so sacred about land prices/house prices that they can't be fixed in relation to salaries.
What is so sacred about fixing a rational  mortgage/salary/ house price  ratio?
We find that Government can give tax relief to the well off, cut spending, impose wage freezes, even impose wage cuts but they cannot fix the price for land.

Economists call the debate over asset price a red herring while ignoring the smell from thousands of people burdened with high mortgages and reduced services, adding on the NAMA debt to the nation which has the impossible target of getting a return from property speculation fueled, inflated assets.
And why? because they claim the debate over asset price to be a red herring.

[Billys Boots]

Those articles raise more questions than answers.