Morgan Kelly

I can’t really add much to Mr Kelly’s excellent analysis. What it says to me is that the next 12 to 18 months are going to be among the most difficult, if not the most difficult, time this country has faced. I encourage everyone to read the entire document.

I will emphasise his conclusion:

Despite having pushed the Irish state close to, and quite possibly beyond, the limits ofits fiscal capacity with the NAMA scheme, the Irish banks remain as zombies whose only priority is to reduce their debt, and who face complete destruction from mortgage losses. The issue therefore is not whether the Irish bank bailout will restore the Irish banks sothat they can function as independent commercial entities: it cannot. Rather it is whether the Irish government’s commitments to bank bond holders when added to its existing spend-ing commitments, will overwhelm the fiscal capacity of the Irish state, forcing outside entities such as the IMF and EU to intervene and impose a resolution on the Irish banking system.

The Irish Credit Bubble (UCD)

[cross posted to thestory.ie]

More NAMA stuff

Two good articles by IT journalists over the weekend.

First up, Simon Carswell, via FoI:

THE INTERNATIONAL Monetary Fund (IMF) told the Government that the definition of “long-term economic value” on bank loans in the draft Nama Bill was “masterful” as it was “sufficiently specific” and “sufficiently vague” to allow “appropriate flexibility”.

Steven Seelig, an adviser at the IMF, made the comments in an e-mailed response to a request by the Department of Finance for his opinion on the draft National Asset Management Agency Bill published last August.

“It is both sufficiently specific and sufficiently vague to allow appropriate flexibility. I hope you can retain this language,” said Mr Seelig, an expert on “bad banks”, in a private e-mail to department officials sent on August 25th.

The e-mail was among records released to The Irish Times under the Freedom of Information Act relating to representations made to the department on Nama.


And Laura Slattery, also via FoI
:

THE NATIONAL Asset Management Agency (Nama) should be required to register with the Land Registry or the Registry of Deeds, Minister for Finance Brian Lenihan has been advised.

In correspondence released to The Irish Times under the Freedom of Information Act, the Law Society of Ireland and the Property Registration Authority both expressed concern about the exemption for Nama assets to register in the Land Registry or the Registry of Deeds.

The society wrote to Mr Lenihan in September to say “normal conveyancing practice” should not be disrupted by Nama and that the agency should be required to register its interest in a land bank or property title.

The Property Registration Authority said the exemption for Nama assets to register “would appear to run counter to public policy and the necessity of transparency and reliability in land registers”.

Registration on a State register “provides clarity and certainty”, John Coleman, chairman of the Property Registration Authority, wrote to the Department of Finance. Other letters written to Mr Lenihan expressing concerns about the workings of Nama included a note from Bernard Allen TD, chairman of the Committee of Public Accounts.

I will be seeking copies of these FoI in my own future FoIs.

NAMA and risk reports

[Crossposted to thestory.ie]

I will post the document first and tell the story below, it’s worth a look. The information contained in this FOI, is I believe, valuable.

Cost-benefit analyses, impact reports or preparatory reports for NAMA

Why is this information valuable? It contains a timeline of what companies were involved in consulting the Government on the formation of NAMA, and gives us insight into the process. It also contains previously unknown titles, such as HSBC’s “Project Neo”. This is likely relates to the rumoured formation of a “New Anglo Irish Bank” in 2010. And it gives us an idea as to the level of involvement of Merrill, Arthur Cox, Rotschilds, PwC and HSBC.

The background:

A little bit of a saga ended today, finally. It is worth noting the dates involved in this request.

On August 17 I sought the following information from the Department of Finance:

1) A list of all cost-benefit analyses, impact reports or preparatory reports that have been carried out by the Department in relation to the proposed National Asset Management Agency (NAMA). Please can you list the title of the document, its date, and by whom it was written.

2) A list of all cost-benefit analyses, impact reports, or preparatory reports that have been carried out by people or companies working on behalf of, or at the request of the Department, in relation to the proposed National Asset Management Agency (NAMA). Please can you list the title of the document, its date, and by whom it was written.

I received my acknowledgment as standard, which was followed up with an email. The email said it was unlikely my request would be successful but if I wanted, I could be given information outside of my request. I went along with this and it resulted in this blog post on September 30. That’s in and around the 20 day limit under the Act.

But I didn’t feel the information provided was sufficient, and I always wanted information should my request be refused. So I said I still wanted to proceed with my original request. The Department then took the date of my re-request as the initial date, thus giving them another 20 working days. This brought the result of the request into early November, despite an initial request in August.

Numerous emails were sent, and replied to. The civil servants involved were “busy” with NAMA and it was taking longer than normal to reply to my request. Last week I had enough, and wrote an email seeking an internal review as my request was now a deemed refusal since the 20 day limit had expired. Today, December 8, nearly four months later, I got the reply.

Reports prepared for NAMA

Some time ago I sought the following information from the Department of Finance:

1) The titles, dates and authors of all cost-benefit analyses, impact reports or preparatory reports that have been carried out by the Department in relation to NAMA

2) The titles, dates and authors of all cost-benefit analyses, impact reports or preparatory reports that have been carried out by people or companies working on behalf of, or at the request, of the Department, in relation to NAMA

Outside of the FOI (though I still intend pursuing this information through FOI, whether or not it is rejected) I received the following information:

Merrill Lynch (engaged by NTMA)

A number of reports setting out options for the Irish banking sector, including the treatment of impaired assets

PwC (engaged by Financial Regulator)

Various reports produced by PwC, including due diligence on covered institutions arising from the Government guarantee Scheme and recapitalisation programme (in cases with the input of Jones Lang LaSalle)

Arthur Cox

Various legal assessments of covered institutions arising from the Government guarantee Scheme and recapitalisation programme

Peter Bacon, Special Advisor to the Minister / NTMA

Evaluation of options for resolving property loan impairments and associated capital adequacy of Irish credit institutions: Proposal for a National Asset Management Agency and associated required policy initiatives

Rothschild (engaged by NTMA)

Various reports and inputs into the preparations for the establishment of NAMA

Central Bank & Financial Regulator Reports

Various reports produced within normal operating parameters as well as certain assessments of the impact of contingency proposals

HSBC (engaged by NTMA)

A number of reports produced for the interim NAMA and the Minister

NTMA is a curious entity. Back in May were were promised salary scales for NAMA. Have you seen any? The salary of Mr Somers, the head of the NTMA is also secret, apparently. I feel another FOI request coming on.

Liam Carroll's web of companies

[cross posted to thestory.ie]

I’ve made a stab at tracking the web of companies that fall under the various Morston Investments companies. There are a number of curious facts about these companies, clues of which can be found in some of the locations and names of companies. The number after each company name is my own, to help me distinguish between the various Morstons.

Liam Carroll spreadsheet

I was especially curious about Morston UK. Mr Carroll does not appear anywhere on the company information for the UK firm. However, Morston UK has a Dutch subsidiary called Vantive Finance (interesting name), which in turn has an Irish subsidiary called Vantive CC (which does list Mr Carroll as a director). Why this complex structure? And who are the curious pair who direct Morston UK? (more on that later).

Another curious name to pop up relates to Morston (4). The holding companies all contain typical directorships (Carroll and Pope), bar one. That directorship in one of the subsidiaries (Zoe OptionGrantco) is one Ms Natalia Romanova, according to company information, who is based in Dublin.

Thoughts anyone?

Myths, Lies and Spin – NAMA

[Via bostonorberlin on the Pin]

We are all to blame, we are all to responsible, we all had our heads in the trough
MYTH/LIE/SPIN
2,000 individual loans make up the €77 billion in toxic bad loans the tax payer is taking on.
150 individuals are responsible for €50 billion of the toxic bad loans the tax payer is taking on.
€32 billion of the bank bailout is belonging to just two banks, chaired by two individuals who have since retired Michael Fingleton and Sean Fitzpatrick
There are just over 160 Members of Dail Eireann
There are 84 TDs in Government FF, Green, Independents
There are 81 TDs in Opposition

We have reached the Bottom (I) – Brian Lenihan
MYTH/LIE/SPIN
He provides no report, countrywide analysis or figures to prove this, it is simply a soundbyte.
If we have hit the bottom then where are the buyers flooding the market.
Just as you cant call the top until after the fact, one cant call the bottom either
He is basing this on the rental yields on commercial property in Dublin, which is a small part, of one market in one city in Ireland, There’s no evidence we have reached bottom in Waterford, Cork, Limerick, Nenagh, Thurles, Cahir Borrisonossory, Clifden, etc.
There’s no evidence we have reached bottom in residential property, no evidence we have reached bottom in development land.
Some estate agent commentators still feel we have another 20% to fall.
And by all international standard house prices in Ireland are still over priced.

We have reached the bottom. (II)
MYTH/LIE/SPIN
The governments own adviser contradicts this
ALAN AHEARNE (Economist )Tuesday, September 16, 2008 Irish Times
Two conditions are necessary for a revival in exports: a rebound in economic activity abroad and a substantial improvement in cost competitiveness at home AA Income tax rates will need to rise.
This projected path for economic activity looks implausible. Weak incoming data, a deteriorating outlook for growth abroad and the scale of adjustment in the housing market that has still to take place point to significant contractions in GDP both this year and next. The economy may stabilise in 2010 as the drag from new homebuilding fades, but we will probably have to wait until 2011 for a rebound to strong growth

House Prices have reached Bottom (III)
MYTH/LIE/SPIN
Again the governments own adviser contradicts this and says we wont hit bottom until 2011
ALAN AHEARNE (Economist )
The international experience of housing booms and busts shows that real (that is, inflation-adjusted) house prices typically decline for nearly five years following the peak. Real house prices peaked in Ireland in the fourth quarter of 2006. Typically, house prices give up almost all of the gains recorded in the five years before the peak. That translates into a drop in real house prices here of about one third by 2011.

4-5 Years for Recessions and property crashes to run their course.
MYTH/LIE/SPIN
The government is spinning that the property crash and recession has bottomed out as they only run 4-5 years.
The average length of recent recessions has been 6 years as per a recent Goldman Sachs report.
As this is an average who is to say the length of the recession in Ireland will not be at the extreme of this range.
If peak of the boom was late 2006. we have until late 2011 minimum, best case , late 2012 according to Goldman Sachs and sometime past late 2013 if we are on the wrong side of the average. Again BL still claims we have hit bottom.
If the recession has not run its course and could have legs fro a few more years how can the property market have already bottomed out.


If NAMA hasn’t turned a profit or broke even in 10 years, it means the country/economy hasn’t recovered and so NAMA is the least of our worries.

MYTH/LIE/SPIN
If the country hasn’t recoverd NAMA and the bonds issued will still be an issue and have to be paid off.
And most likely NAMA, and the massive debt it has put on the country will be part of the reason why the country hasn’t recovered.

No cost to the tax payer
MYTH/LIE/SPIN
All government bonds are paid for by the Tax payer.
The tax payer is already hit with levies and increased taxes to fund current borrowing which is set to increase.
The tax payer is already hit with levies and increased taxes to fund the extra borrowing required to pay for the 7 billion already given to the banks.
The tax payer is already hit with levies and increased taxes to fund the extra interest rate on our current borrowing we are being charged on the international markets because the country is in such turmoil.
Outside of NAMA our borrowing is still increasing, all of which will cost the taxpayer.
Bank of Ireland has already received 3Billion Anglo 4 Billion.

Interest on bonds issued is only 1.5%.
MYTH/LIE/SPIN
This is a variable Interest rate. The interest rate will be reset every 6 months and is based on ECB rates. So if ECB rates rise so too will the NAMA bond rates.
If ECB interest rates were to hit 4%, that would mean an extra 2 Billion in interest payments we would have to make to the BANKS who we gave the bonds to for their bad loans .
Experts have said long term ECB interest rates are forecast to increase and could be 3% in the medium to long term


We already own Anglo so the purchase of its loans can be ignored as its one hand of the Govt. paying another hand of the Govt.

MYTH/LIE/SPIN
We have nationalized Anglo but we also pumped 4 Billion euro into it. 4 Billion Euro diverted from other parts of the state, 4 billion we ultimately had to borrow, 4 Billion we still have to pay back, 4 Billion we are paying interest on.

The 7 Billion Premium paid on the current market value was required to get the banks on board.
MYTH/LIE/SPIN
There is no evidence to suggest the banks would not have taken a smaller premium or even none at all.
The market has responded, 30% jump in bank shares , it was the steal of the century and the banks and the markets know that.

All we need is a 10% jump in property prices for NAMA to work.
MYTH/LIE/SPIN
Its more like a 15% jump that would be required for NAMA to break even.
We are still in a falling market, if we fall for another year or two, then we may require a 18,20,25+% jump from that point to get us back to breaking even.
Plus its all pre-supposses we are at the bottom, but what if we are not and lots of international experts say we are not.

€77 bn loans.
60% non-performing.
9 bn rolled-up interest.
From the Zoe case, it appears that the liquidation value of non-performing loans is 25%.
77-9=68
68 – (68*0.6) = 27.2
(68*0.6) = 40.8 * 0.25 = 10.2
Assuming none of the performing loans go bad, are at least 100% LTV, and are at market price, total asset value = 37.4 bn.

The percentage increase from €37 billion to €54 billion is 45.95%, not 10%.


House Prices will increase and bring NAMA with it.

MYTH/LIE/SPIN
The ESRI and IMF have already forecast negative growth for next year. How are we going to get rising house prices in a falling contracting economy.

The NAMA model will recapitalize the bank

MYTH/LIE/SPIN
Because the government have not released figures its not apparent this will in fact work.
This will not solve all banks issues they still hav to raise funding on the international markets. ‘The Economist’
In fact AIB have already said they will need to go to International markets for further funding of 2 Billion.

We have reached bottom, the economy will turn around and grow, house prices will increase (10%) all to the benefit of NAMA

MYTH/LIE/SPIN
To improve our competitiveness in a tougher global market we need prices in Ireland to fall more.
To improve Irelands competitiveness we needs costs, salarys, Govt spending , all to go down.
To keep the jobs we have we needs costs, salarys, Govt spending , all to go down.
All this will produce the opposite of rising house prices, it produces falling house prices, people have less money for a house.
Irelands economic recovery and NAMA breaking even are diametrically opposed.

The Long Term Economic Value of the bad loans NAMA is taking represents a good investment

MYTH/LIE/SPIN
The govt seems to have based this statement on the rental yields in Dublin which is a just one commercial segment of the market, worth approx €8bn.
NAMA’s entire estimation of long-term value hinges on rents holding constant in this subset (Dublin) of a subset (commercial projects) of a subset (projects underway) of a subset (Ireland) of the total loan book.


The ECB is backing this plan and giving the Government or banks this money to buy the NAMA bonds

MYTH/LIE/SPIN
The ECB does not buy Government bonds. The banks are using the bonds as collateral to go to the ECB and say we have Govt bonds therefore the ECB will lend to them.
The extent of the ECB guarantee only goes so far as it sets interest rates but the ECB has given no indication it will not raise ECB rates in he medium term, thereby making NAMA a much more expensive solution.
But at no time does the ECB take the bonds, the banks are left with the and could in fact sell them on the open market therby competing with our own NTMA bonds.

Government NAMA 54Billion versus Regular NTMA Govt Bonds

MYTH/LIE/SPIN
The government has given no analysis of what the impact the NAMA bonds will have on the regular NTMA bonds that the government will also be issuing in the coming years to fund our day to day expenses.
There is nothing in NAMA legislation to say what the banks have todo with the NAMA bonds.
There is nothing in the NAMA legislation to stop the banks from selling NAMA bonds on the open market and therefore competing with NTMA bonds .

Fianna Fail will take the hard decisions.
MYTH/LIE/SPIN
FF has a proven track record of letting the bankers and civil servants get off very lightly, golden parachutes etc…
FF has a track record during the boom of not taking the hard decisions.
FF has a proven record of giving every tax break possible to developers, stock market speculators, and builders
FF has a proven record of making very very bad regulatory decisions which got us into this mess.


Dublin Yields at an all time high and this suggests property values are bottoming out Brian Lenihan

MYTH/LIE/SPIN
There is a law in this country that says commercial rents cannot be marked down. Many rents/yields are high only because the current tenant is not allowed by law to renegotiate the rent and get it lower. A new law allows for future leases not existing leases to have downward revisions.
The State is also propping up rental yields, paying 60m per year.
The Govt looking for lower rents and saving tax payers money is diametrically opposed to NAMA keeping rent high.
40% of commercial property is currently empty in some parts of Dublin.
Look around the city the place is awash with offices for rent

The IMF backs the NAMA model

MYTH/LIE/SPIN
IMF 2008 report has stated government backed asset management agencys do not work due to political and legal entanglements

NAMA will get credit flowing
MYTH/LIE/SPIN
There is nothing in the NAMA legislation to FORCE Banks to start lending to ordinary people and SMEs
There is no evidence credit has started flowing yet in the UK and the US after their massive bailouts , in fact credit indexes are showing that credit is actually contracting .

Current Market Value is 47Billion
MYTH/LIE/SPIN
Based on the opinions of many vested interests who have advised the Govt.
Based on the assumption theres is a market for these properties, but there is no evidence a market exists , if no market exists much of this property and land is actually worthless.
Also based on the assumption we have hit bottom.
This figure is pulled from the air. The Govt provides no figures or reports to back this claim up.
Market value assumptions seem to be just based on rent and yields in just the Dublin, which is a very vague amount.
If current market value is 47 Billion then why don’t the banks just sell the stuff for 47 Billion and they wouldn’t need any tax payer money.

GOVT open to other parties contributions

MYTH/LIE/SPIN
Bank chiefs have worn out the rug going in and out to government building meeting with their friends in the Govt.
Bank chiefs were summoned to Leinster house in the days before NAMA at a time when other Govt parties were not allowed access to any of the details even though those parties promised non-disclosure of any info they were allowed to see.

We do not have time to debate this further its time to implement this plan to save the country.
MYTH/LIE/SPIN
The government just spent the last 6 weeks on holidays , there is plenty time to debate and amend this legislation.

All the other alternatives would not work and would cost more
MYTH/LIE/SPIN
Many commentators , including Nobel laureates have stated other alternatives proposed by the opposition parties including temporary nationalization would not only be cheaper, less risky and also implement faster to get credit flowing.
Many economists have said other alternatives are better.

The Government is not doing any favours for its banking buddies.
MYTH/LIE/SPIN
Prior to the nationalization of Anglo, civil servants in the Dept. Of Finance had prepared a proposal to nationalize Anglo and wind it down.
The minister went against this and instead issued a blanket guarantee for Anglo.
Anglo Irish Bank was kept alive for 3 months after the Govt guarantee during which time significant bonuses were paid before it was nationalized.
The two chairmen of the Anglo and Irish Nationawide have been allowed walk away with massive payouts and pensions even though the tax payer is now buying bad loans from their banks for more than 30 Billion Suro.

Government is extracting retribution from the banks
MYTH/LIE/SPIN
The Government didn’t enforce pay restraint on the banks when they had them over a barrel before writing the guarantee, nor
has they taken this opportunity now when we have a chance regarding the premium and is actually paying over the odds
There is nothing in the NAMA legislation to control the executive pay or bonus culture at the banks which we are bailing out.

This is not a bank bailout
MYTH/LIE/SPIN
Not worthy of a rebuttal, complete utter BS

The Government will pursue Developers for full repayment of loans & Govt does not believe developers assets are being hidden
MYTH/LIE/SPIN
The is lots of documentary evidence, historical incidents to indicate most developers have already pocketed large reserves of cash and holdings off shore or transferred assets to other family members or entities to evade Government acquisition.
For gods sake they do this during the boom time , of course they would be doing this during a downturn.
The government have not costed how much it will cost to pursue these assests.

The Government has been open and transparent
MYTH/LIE/SPIN
Dated subordinated debt was guaranteed by the govt, in its blanket bank guarantee, with no explanation .
Why was this done, this type of debt is taken on with a risk, the investor knows there’s a risk, yet the govt gave a guarantee .

The FF Government has already implemented overhaul of the banking industry
MYTH/LIE/SPIN
Over 80% of Irish Banks board members have been in place since before 2008 .
There has been NO clearout of Irish Banks

There will be transparency and legislation to prevent non-political interference
MYTH/LIE/SPIN
Multiple sections of the NAMA legislation is to be at the direct discretion and exclusively by The Minister of Finance.

NAMA will not need much staffing as the banks will continue to manage the loans
MYTH/LIE/SPIN
Huge legal issues exist here here as well as conflict of interest for bank employees in managing loans belonging to another institution ie. NAMA
Govt has admitted recently it gave Rody Molloy €1.4 million so that he would not drag the state down the Four courts.
Think what 2000 developers who are not happy with a valuation could cost the state in legal fees and time.
Rememeber the tribunals some of which are still stuck in legalese.

FF says other proposals involve TOTAL banking nationalisation
MYTH/LIE/SPIN
Many proposals inclunding Labours proposes temporary nationalization of the two main high street banks.

FF Says wholesale nationalisation of banks should be prevented at all costs as international markets will not lend to state owned banks
MYTH/LIE/SPIN
There is no evidence of this , and in fact lots of state owned banks do borrow on the international markets

We must avoid further Nationalisation at all costs
MYTH/LIE/SPIN
Many countries have already nationalized large financial entities. Or taken much larger shareholding in the banks it did bailout. We have taken a paltry 25% in the banks we have bailed out.

NAMA is akin to the much vaunted Swedish model.
MYTH/LIE/SPIN
NAMA is not like the Swedish Model. In the Swedish model there was much more temporary nationalisation
There was much more punitive measures in the legislation
There was a wholesale clearout of its banking executives.

The Govt, FF and Green Party says Irelands woes were caused by the collapse of Lehman brothers.
MYTH/LIE/SPIN
If you need this explained as to why it is totally bullshit bogus spin then you shouldn’t be reading this .

Green Party party claim they have a proud record of standing up to vested interests.
MYTH/LIE/SPIN
see item above

FF says it is taking every measure to prevent this form of financial corruption and financial irresponsibility from happening again.
MYTH/LIE/SPIN
They and other politicians have said this many times before , remember Ansbacher , off shore accounts, DIRT retention, bank over-charging etc…
There is no evidence to support this in fact the evidence indicates the oppossite

There is no method to stop NAMA from going through.
MYTH/LIE/SPIN
The president has an alternative. Let the people decide for themselves, the constitution provides for the President referring the NAMA bill to a referendum, it being an issue of National importance

Current trading in Irish bank shares is small scale investors and purely speculative
MYTH/LIE/SPIN
Finance Minister Brian Lenihan said trading in Irish banking shares is akin to a “bookie’s office operation” at the moment.
“The value of trading of these shares at this level is highly speculative,” Lenihan said in an interview with RTE radio. “There has been very little institutional dealing in Irish bank shares.”
Lots of Bloc trades have been issued in recent days, some massive volumes including trades of 1.5m shares in one lot, and the vast majority were trades of blocs of 10k and over. Sure Lenny, loads of grannies and day trading students.

This is a good deal for the TaxPayer
MYTH/LIE/SPIN
AIB and BOI have skyrocketed recently because the markets, stock brokers and investors know this is a great deal for the banks.

The NAMA haircut is between 35-40%
MYTH/LIE/SPIN
This may be the average but the bulk of the haircut is on Anglos loan book, the state already owns Anglo. Therefore its one state body paying another state body. The real focus is what he other non-nationalised banks are gtting.
The haircut the other banks have had to take is very small given how toxic their loans were, in fact for AIB and BOI its 20% or lower.

The NAMA Haircut of 35-40% (20% for BOI and AIB) was a good deal
MYTH/LIE/SPIN
Recently in the high court case involving Zoe and ACC/Rabobank it was accepted by both parties that the haircut on some property loans was in the region of 70-75%.
Recent receiver fire sales of properties have documented falls of over 60% as shown on a Primetime Special
20% haircut for AIB and BOI is not a good deal,

NAMA will Redevelop some hotel properties
MYTH/LIE/SPIN
Estimates are huge amounts of finished and unfinished hotel projects will come into NAMAs
Currently the Irish hotel industry is in its worst state ever. There is no need for one more hotel room in Ireland
The return on hotel investment is very low, we have over capacity in hotels.

25% Value of loans been taken over by NAMA were covered.
MYTH/LIE/SPIN
Its an acknowledged fact many developers used other properties as collateral for loans. This collateral is now worthless.
Many developers used other loans to finance larger loans… ie Borrow 1 million from one bank to get 10 million from another.
Many solicitors and developers have been found to have multiple mortgages taken out on the same properties, again worthless loans.

NAMA will Redevelop housing projects over the long term
MYTH/LIE/SPIN
There is no evidence to suggest we have ashortage of housing or will have a shortage of housing in the coming years.
In fact we will have net Emigration next year.
Waterford has 4,000 houses for sale
The Midlands is plagued with over supply and overzoning

International commentators are stating NAMA is the best model.
MYTH/LIE/SPIN
The main people saying NAMA is a good deal are DAVY, Bloxham, stockbrokers, AIB,BOI, and also the ex heads of these banks.
These are the main voices saying NAMA is a good deal. The same voices who got us into this mess.

The taxpayer is protected if NAMA does not work out
MYTH/LIE/SPIN
There is no specific levy in this legislation should there be a downside for the taxpayer. There is only a provision for the Minister to ask for one if he decides at a future date we require one. That’s not protection for the taxpayer.
Real protection for the taxpayer would involve explicitly placing a levy in the legislation

We have to do our patriotic duty and swallow this biter pill
MYTH/LIE/SPIN
Why did the government not ask the banks chiefs and FAS chairman who retired to do their patirotic duty and walk away from their pension pots and golden parachutes.

The ECONOMIST Magazine Thinks the NAMA plan is a good plan
MYTH/LIE/SPIN
“The Econmist has welcomed it in the sense that its finally doing something but they have also clearly stated who they see as benefiting best from NAMA and it isn’t the Tax payer. “
The government seems to have erred on the side of favouring shareholders, largely to minimise the amount of capital it would have to inject into the banks.
“The trouble is that the banks have run up such large losses that it will be lucky to achieve even two of its three objectives”


The Financial Timess Thinks the NAMA plan is a good plan

MYTH/LIE/SPIN
They have given a guarded welcome to the plan and only in the sense that the banks and markets have responded in a positive manner to the plan. The FT has not stated this is a good deal for the country or the tax payer.
“Property loans are only one problem facing Ireland’s recession-bound lenders”


NAMA will get development value out of the properties it is taking on

MYTH/LIE/SPIN
(The full breakdown is: land (36%), development (28%) and associated loans (36%), we have €21bn, or more than half accounted for, by land
This is the very same land that we have heard has been devalued by anything up to 95% from the peak, due to the probability of a good deal of land being rezoned to agricultural. It’s reasonable to assume that this land splits down in some way between that which probably will be developed (and which has presumably fallen in value by 50%), and that which probably won’t (likely down 90%).

NAMA Legislation will protect the NAMA agency form political interference.
MYTH/LIE/SPIN
Much of the NAMA legislation is very vague and allows for lots of decisions to be made at the exclusive whim of the Minister for Finance .
NAMA is akin to the all empowering PATRIOT Act that Bush pushed through in the US

The government has driven a hard bargain with the Banks
MYTH/LIE/SPIN
Interim director of NAMA Brendan McDonagh, said the number of loans the banks had earmarked for NAMA had increased significantly since the draft bill was published because banks had reassessed their books.
In two weeks, after the draft legislation the number of loans the banks wished to pass to the tax payer rose from 18,000 to 21,500.

Popular Media are behind NAMA
MYTH/LIE/SPIN
The popular Irish Media, broadsheets and television got it drastically wrong during the boom equally these same entities and same persons in many cases will get it drastically wrong on this matter.

AIB BOI Bank Shares are up …we should celebrate
MYTH/LIE/SPIN
A few years back when bank shares were hitting 18 euro the media thought that was good for the country too, long term it has been PROVEN to be a false economy and of no long term benefit to the nation as a whole.

Trust FF and the government on NAMA
MYTH/LIE/SPIN
FF and the governemtn have gotten so many decisions, agencys , policys wrong they have a proven track record of ineptitude, incompetence and corruption over and over again.. This is another example
PPARS, e-Voting, FAS, Thornton hall, Section 23 hotel breaks, ministers expenses, rezoning, tribunals…etc etc

Not a gamble..
MYTH/LIE/SPIN
Yes it is a gamble

The ECB have not had historical high interest rates
MYTH/LIE/SPIN
Yes the ECB has had high interest rates and is forecast to have so in the medium to long term future
The government has given no analysis of the impact rising ECB interest rates will have on the cost of NAMA

NAMA will Manage property prices without political interference
MYTH/LIE/SPIN
The state will become the largest property developer in the state and possibly the world. It will want prices to rise not fall and we all know that rising prices are not good .
The IMF recommends Governments do not artificially prop up house process, which is exactly what NAMA will have todo for it to work.


The NAMA Model is the cheapest bailout guarantee in the world

MYTH/LIE/SPIN
Taken on a per head of population basis NAMA and the billions we have already put into the banks means NAMA is not the cheapest bailout , in fact its working out more expenseive than the US and UK Model.
And in the US and the UK they have taken larger (75-100%) ownership of some of the financial institutions they have bailed out.

NAMA – a fraud on the taxpayer

The Minister is assuming, for this exercise, that not only have we reached the bottom but we are about to bounce back. Yet he has not offered supporting evidence for this. It is extremely worrying that we are being asked to make this decision without access to proper evidence. This goes to the core of the issue.

One thing Irish people have learned over the last seven years is not to accept glib assurances from Ministers that everything will turn out all right on the night. Many of those who are telling us today there is no alternative to NAMA are the same people who told us the property price rises were based on sound economic fundamentals.

They are the same people who were telling us there would be a soft landing. They turned around to the critics and said it was an act of national sabotage to criticise the wonderful policies the Government was pursuing. These people are now hatching up the idea that there is only one game in town. The new creed is the notion of long-term economic value, which has replaced the concept of sound economic fundamentals. It is telling us that for these people the dream lives on: a bounce-back is just around the corner.

There will be no bounce back. There will be no bounce back. There will be no bounce back.

The toxic triangle of Fianna Fáil, bankers and developer-borrowers must be dealt with. I will send the relevant sections of the Bill to the Minister. I acknowledge that he wrote to me yesterday to indicate his intention to amend certain sections at the request of the Labour Party arising from legal advice we received on current crisis conditions. I will send him the further legal advice to which I referred. An undertaking by the Minister to amend the legislation in this respect would be in the public interest.

Like one of the characters in Alice in Wonderland, this legislation requires the public to believe six impossible things before breakfast, all of which come down to a question of trust. Do we trust Fianna Fáil and the Minister for Finance to head up the largest property firm on the planet? Do we trust Fianna Fáil not to bail out the bankers and developer-borrowers? Do we trust the Minister who claimed that the blanket guarantee he introduced for the financial institutions last September would be the cheapest bank rescue in the world? Do we trust a Taoiseach who pleaded that Ireland’s economic fundamentals were sound when it was plain to see we were teetering on the brink of disaster? Do we trust a Government that inflated a property bubble, ignored all advice to curtail property-based tax incentives and buried its head in the sand when the house of cards collapsed? Do we trust the Green Party to put the country first or will it stay in office at all costs?

The people are giving their verdict on these questions. We are receiving mountains of e-mails and letters pleading with the Government to change course, because these correspondents know we are heading for disaster. Fianna Fáil’s rock-bottom standing in the polls is an indication of the public perception that its trust has been betrayed. People see the modest prosperity they have built up through hard work in the last 15 to 20 years slipping away from them. This is the painful reality for many. People are angry and cannot fathom why the Minister for Finance wants to pour €44 billion into the very financial institutions that hold their mortgages, many of which are now in negative equity. People no longer trust Fianna Fáil on the economy.

Do you trust Fianna Fail?

If you read one debate, read this one. Joan Burton and Richard Bruton, in my opinion, are absolutely correct in everything they say.

Michael O'Flynn vs Eamon Gilmore

At the CIF annual conference today, a room full of developers sat down for some speeches. Eamon Gilmore gave one, and in the Q&A Cork developer Michael O’Flynn (famous for the Elysian development, still mostly empty) had two questions for Mr Gilmore:

What does he think of developers?
Why does he keep saying NAMA is a bailout for developers?

Apologies for the sound quality, twas the best I could do.

Earlier, Eamon Gilmore gave this speech to the room of developers:

Part 2:

What is wrong with Ireland?

This will be a long post, so stay with me if you can:

Countries are in a desperate economic situation for one simple reason—the powerful elites within them overreached in good times and took too many risks. Emerging-market governments and their private-sector allies commonly form a tight-knit—and, most of the time, genteel—oligarchy, running the country rather like a profit-seeking company in which they are the controlling shareholders. When a country like Indonesia or South Korea or Ireland grows, so do the ambitions of its captains of industry. As masters of their mini-universe, these people make some investments that clearly benefit the broader economy, but they also start making bigger and riskier bets. They reckon—correctly, in most cases—that their political connections will allow them to push onto the government any substantial problems that arise.

In Ireland, for instance, the private sector is now in serious trouble because, over the past seven years or so, it borrowed at least $130 billion from banks and investors on the assumption that the country’s property sector could support a permanent increase in consumption throughout the economy. As Ireland’s oligarchs spent this capital, acquiring other companies and embarking on ambitious investment plans that generated jobs, their importance to the political elite increased. Growing political support meant better access to lucrative contracts, tax breaks, and subsidies. And foreign investors could not have been more pleased; all other things being equal, they prefer to lend money to people who have the implicit backing of their national governments, even if that backing gives off the faint whiff of corruption.

But inevitably, oligarchs get carried away; they waste money and build massive business empires on a mountain of debt. Local banks, sometimes pressured by the government, become too willing to extend credit to the elite and to those who depend on them. Overborrowing always ends badly, whether for an individual, a company, or a country. Sooner or later, credit conditions become tighter and no one will lend you money on anything close to affordable terms.

The downward spiral that follows is remarkably steep. Enormous companies teeter on the brink of default, and the local banks that have lent to them collapse. Yesterday’s “public-private partnerships” are relabeled “crony capitalism.” With credit unavailable, economic paralysis ensues, and conditions just get worse and worse. The government is forced to draw down its foreign-currency reserves to pay for imports, service debt, and cover private losses. But these reserves will eventually run out. If the country cannot right itself before that happens, it will default on its sovereign debt and become an economic pariah. The government, in its race to stop the bleeding, will typically need to wipe out some of the national champions—now hemorrhaging cash—and usually restructure a banking system that’s gone badly out of balance. It will, in other words, need to squeeze at least some of its oligarchs.

Squeezing the oligarchs, though, is seldom the strategy of choice among governments. Quite the contrary: at the outset of the crisis, the oligarchs are usually among the first to get extra help from the government, such as preferential access to foreign currency, or maybe a nice tax break, or—here’s a classic Dublin bailout technique—the assumption of private debt obligations by the government. Under duress, generosity toward old friends takes many innovative forms. Meanwhile, needing to squeeze someone, most emerging-market governments look first to ordinary working folk—at least until the riots grow too large.

Eventually, as the oligarchs in Cowen’s Ireland now realize, some within the elite have to lose out before recovery can begin. It’s a game of musical chairs: there just isn’t enough cash to take care of everyone, and the government cannot afford to take over private-sector debt completely.

First, an admission. The above is a quote from Simon Johnson’s excellent essay in the Atlantic in May of this year, The Quiet Coup. But I have modified it ever so slightly. I simply replaced the word ‘Russia’ with ‘Ireland’, and other slight edits to take into account energy versus property. You can see the original here.

Why the modification? Well it demonstrates at exactly the level Ireland is at.

We are a two-bit emerging market economy, dominated by political and business elites. I think it’s an open and shut case. Every word Johnson intended for Russia accurately applies to Ireland. We are almost the definition of a banana republic.

The only difference is in the last paragraph. “Some within the elite have to lose out before recovery can begin.” No. In Ireland, no oligarch property developer will lose out if the government can help it – thanks to the €90 billion NAMA, what will be the largest property ‘firm’ in the world.

The only people who will end up paying are you and me, our children, and our grandchildren. If people think our political leaders are acting out of the interest of the taxpayer they are dead wrong. Our political leaders are acting only in the interests of themselves and their paymaster developers.

Let us examine some of Johnson’s indicators that we are an emerging market, dominated by oligarchs. We could make a checklist:

* “Emerging-market governments and their private-sector allies commonly form a tight-knit—and, most of the time, genteel—oligarchy, running the country rather like a profit-seeking company in which they are the controlling shareholders.”
Check.

* “As masters of their mini-universe, these people make some investments that clearly benefit the broader economy, but they also start making bigger and riskier bets. They reckon—correctly, in most cases—that their political connections will allow them to push onto the government any substantial problems that arise.”
Check.

* “As Ireland’s oligarchs spent this capital, acquiring other companies and embarking on ambitious investment plans that generated jobs, their importance to the political elite increased.”
Check.

* “Growing political support meant better access to lucrative contracts, tax breaks, and subsidies.”
Check.

* “Oligarchs get carried away; they waste money and build massive business empires on a mountain of debt.” Check.

* “Local banks, sometimes pressured by the government, become too willing to extend credit to the elite and to those who depend on them.”
Check.

* “Overborrowing always ends badly, whether for an individual, a company, or a country. Sooner or later, credit conditions become tighter and no one will lend you money on anything close to affordable terms.”
Check.

* “Enormous companies teeter on the brink of default, and the local banks that have lent to them collapse.”
Check.

* “If the country cannot right itself before that happens, it will default on its sovereign debt and become an economic pariah.”
Check.

* “The government, in its race to stop the bleeding, will typically need to wipe out some of the national champions—now hemorrhaging cash—and usually restructure a banking system that’s gone badly out of balance. It will, in other words, need to squeeze at least some of its oligarchs.”
Check.

* “Squeezing the oligarchs, though, is seldom the strategy of choice among governments.”
Check.

* “At the outset of the crisis, the oligarchs are usually among the first to get extra help from the government, such as preferential access to foreign currency, or maybe a nice tax break, or—here’s a classic Dublin bailout technique—the assumption of private debt obligations by the government“.
Check. NAMA.

* “Under duress, generosity toward old friends takes many innovative forms. Meanwhile, needing to squeeze someone, most emerging-market governments look first to ordinary working folk—at least until the riots grow too large.”
Check, minus the riots. Yet.

* “Some within the elite have to lose out before recovery can begin. It’s a game of musical chairs: there just isn’t enough cash to take care of everyone, and the government cannot afford to take over private-sector debt completely.”
Except in Ireland, where we are trying to assume €90bn in private sector debt. Liam Carroll as the elite one losing out? Check.

And so we return to the original question posed: What is wrong with Ireland? My answer is this: We believe we are something we are not.

We believe we have a more mature regulatory environment, a mature, transparent and accountable political system, we believe the media holds our government to account, and we believe that our elected leaders will act in the best interests of citizens. Even the media believes it holds the government to account.

These assumptions are all wrong.

When you examine, even to a minor degree, any aspect of Irish society, you will invariably find a distinct lack of all the above factors. For example captured regulators: The Financial Regulator, the Irish Stock Exchange, the ODCE, ComReg, the Financial Ombudsman.

Whenever and wherever corruption is discovered, nothing happens. Whenever and wherever whistles are blown, nothing happens. We live in a country where the very idea of accountability, or that our politicians are our servants, simply does not exist.

As a nation state, we are a failure. As a democracy, we have failed. As a country we are bankrupt, both morally and financially. We are the emerging market, banana republic of the European Union. Our political system is broken. It is beyond redemption.

Some will reply that I am a socialist, or other such attacks. I am actually right of centre economically, I just recognise what is standing in front of me for what it is. An almost incalculable political and financial mess – generations are being saddled with the debts of the oligarchs, and the taxpayer is being lied to by its own government.

The only hope is this: That the people, in whose hands all power rests, will realise the appalling vista of a broken Ireland – a country in need of radical political reform – and demand that it is changed.

If it is not, everything that has happened, will continue to happen, and we, the citizens, will continue to pay the price.

Please fell free to Digg this 🙂

Related links:
Michael Taft reckons NAMA won’t be so bad. Maybe.
Constanin Gurdgiev is less optimistic about NAMA.
Karl Whelan has lots of posts on NAMA

Sean Dunne's Icelandic debts

Commenter FPL has pointed to a Wikileaks document I hadn’t seen before, and I believe has not received widespread attention. Full PDF (Dunne is on Page 128).

It includes this page, which refers to developer Sean Dunne’s liabilities to Icelandic bank Kaupthing. The bank was sort of like Ireland’s Anglo Irish. It was nationalised last year. The document is genuine, according to Wikileaks, Kaupthing initiated legal action against the website within 24 hours of the document’s release.

dunne

Dunne owes €84.1m through DCD Builders, the building firm he established in 1983, to Kaupthing. This appears to relate to the infamous Ballsbridge site, which currently operates as D4Hotels. The document says Ulster Bank is also owed €326.5m by Mr Dunne for the site.

The document also outlines that Mr Dunne paid $2.75m, with a loan from Kaupthing, for a 1/16th stake in a Gulfstream Jet, as part of the Netjets fractional ownership scheme. This was done via a company called Zaskari Ltd. Despite a range of internet searches, I have not been able to find anything out about Zaskari. See update below.

Netjets is owned by Warren Buffett’s Berkshire Hathaway.

His collateral and guarantees are outlined as follows:

Hotel sites: €520m
Overall LTV 62.8% plus a guarantee from Sean Dunne for €250m (76% of total syndicated facility)

DCD Builders LTV covenant 65%
Zaskari Ltd is guaranteed by Sean Dunne

DCD Builders is given a credit rating of B-, while Zaskari Ltd is given BB+

Risk Factors are outlined as:

The client is currently appealing a decision to refuse planning on two elements of the proposed redevelopment scheme. A final decision is expected within 12 months. It is anticipated that the bank will be asked to increase the facility to cover further interest roll up and pre-development costs.

The Kaupthing document dates from September 2008. Obviously since it was made, Mr Dunne’s efforts to get planning permission at Ballsbridge have failed. And he still owes money to Ulster Bank, and Kaupthing. The Independent reported on the loans back in February 2008.

A few questions arise.

What is Zaskari Ltd? Where is it based? Where does it operate? Who are the directors?
What is Ulster Bank’s current postion on the loans outstanding? (Parented by RBS)
Will this be NAMAd?

Update:

A helpful pinster pointed me in the direction of Zaskari. It is registered in the Isle of Man. Here is the most recent (and only) annual return.

Annual Return (PDF)

The Directors of Zaskari are:

Sean Dunne (Building Contractor)
Peter John Halpenny of Clontarf (Manager)
Ross Paul Connolly of Rush (Chartered Accountant)

Secretaries are:

Douglas Trustees Ltd
Ross Paul Connolly

Share capital is listed as £2,000 of £1 per share.

Peter Halpenny is director of property and development at Sean Dunne’s other company, Mountbrook Homes. Ross Connolly and Mr Halpenny are also directors of Mountbrook Riverside IV Ltd, the vehicle used to seek planning permission for the redevelopment at Ballsbridge.