NAMA – Taxpayer is the big winner !
By Brian on Aug 31, 2009 in Economics, Featured, NAMA, Shares
Contrary to public perception, the taxpayer is not at risk in the NAMA scheme and, in fact, he is the biggest beneficiary. Its the banks’ individual shareholders- tens of thousands of them are probably Irish citizens in their later middle age or older- who stand to lose most.
Will bank shareholders vote for Lisbon?
The Irish government does not have to invest 20, 30 50 or up to 90 billion of taxpayers money in order to bail out the banks. Instead, these are the amounts estimated to be received by the government , as the proceeds of the gradual sale of the banks assets over a period of years, under the NAMA scheme. These monies will be used by the government to fund normal budgetary expenditure, such as the taxpayers social welfare, education for his kids, his national health service, the roads to his holiday homes, etc. This is money which, if it was not to be gathered through the sale of the bank shareholders’ property, would have to be shelled out by the taxpayer himself, in the form of higher taxes over the next ten years, or, at least, and if possible, borrowed on his behalf at high interest rates from international investors.
Some money, of course, will be returned to the banks in the form of state-owned capital- if the government so decides ! Its almost entirely the government’s decision how much it will provide the banks as capital and how much it will allocate to its own current and capital budgetary needs. The government is in position to decide how much own capital the banks must write off at this time. The real value of the assets will be retrospectively adjusted many years hence, at no loss to the taxpayer. But the government has the power to decide now whether to rip more wealth out of the hands of ordinary Írish shareholders, or not.
The government does not pay over any cash to the banks for their property…Instead, it provides the banks with IOUs…”bonds”–at incredibly low interest rates !–or, what we know as “never never” terms. (In reality the big issue about NAMA is the terms of these bonds, yet to be announced). As in all its bond management activities, the government will redeem (- i.e. pay real cash for) these bonds whenever it suits them to do so..or, more exactly, whenever they feel politically safe in asking the taxpayer to pay for them…and not before. That is, for the next period of years, maybe ten years, the taxpayer has tens of billions worth of social services, education and other goodies provided to him by the government, but borrowed from Irish banks’ shareholders !. By the way, there’s no way that the government will pay too much for these banks’ assets…The final price will be whatever the NAMA gets for them when they are liquidated. If that doesn’t match the face value of the bonds which will have been issued then the bonds’ price will fall…or…the government will tax the banks for the difference. That’s the power that governments have
But the taxpayer is being told that he’s taking a risk, where in fact he is the major beneficiary. And the banks’ shareholders are threatened with nationalisation- being completely wiped out, as Eamon Gilmore, Joan Burton, Enda Kenny and Richard Bruton and others would have it- for simply having been hard working savers, prudent investors in Irish economic institutions, and would-be providers of their own late life security so as not to be a burden on the State. For these sins they are vilified.
And I suppose we’ll want them to vote yes for Lisbon also !?
Can you tell me who did your layout? I’ve been looking for one kind of like yours. Thank you.
Susan Kishner | Aug 31, 2009 | Reply
Susan
This is a “zeke” template, found on the WordPress site…I hope that’s the information you need
Regards
Brian
admin | Aug 31, 2009 | Reply
Brian, ( from yesterday’s times) your stance on NAMA is totally without foundation – you said that the ECB will only lend to Banks and not the government, but if the government nationalize the Banks, then they can borrow, for they will be the Bank.
As for the shareholders, it’s tough luck – I myself and thousands of other shareholders trusted the government and bankers to use basic common sense in the governance of these institutions and they blew it. There’s no point in propping up these lame ducks – they’re history , they’ve had a shot at it and failed miserably – they’re simply damaged goods and it’s time for a clean sweep and a new dawn.
We’re too small, we can’t afford lame ducks in any sector and that’s the only way the country will prosper.
Unlike you, I’ve been on the inside of industry – you were on the outside – for forty years and I know failure when I see it – I’ve been there twice.
NAMA is a turkey – the majority of the assets are rubbish and that’s the problem – there wont be any long term value in them. The government should concentrate on getting the economy going and leave the property sector to manage its own affairs.
We’re now going to have to face more cuts and taxes that will further reduce economic activity and so the downward spiral has to be halted very soon or otherwise we’ll be brought to our knees.
The knowledge economy may be a great soundbite, but you and I know that it takes around 5 years for a startup to achieve any thing and that’s in an insecure business to business model – it takes 10 to 20 years to establish a brand name like nokia etc. and that’s the only way to gain a true measure of security.
It’s all very fine having Intel and other froeign brands here giving good employment, but it’s another story trying to do it for ourselves.
So it’s out, out, out for the present incompetent incumbents in government, banking – we simply can’t carry afford lame ducks.
Robert Stokes | Sep 3, 2009 | Reply
Robert
I agree that it would be better if my stance on NAMA – which seems very isolated – was resting on a richer “foundation”, by which I mean more detailed information about the situation in the major banks’ commercial loan departments. But all commentators are suffering the same deficiency of detailed information.
Until we know better, it seems to me that the state/ government (on behalf of the taxpayer) is not going to hand over any cash to the banks until most or all of the assets are liquidated – if ever !-, and, meanwhile will use the proceeds for current and capital expenditure which the taxpayer should normally be funding. Therefore, a Big Win for the taxpayer
I see from todays headline in the Irish Times that Mr. Lenihan –who is doing an excellent job in my view- is considering ” Risk sharing between banks and taxpayer…”, which has to be good news for banks’ shareholders.. Also, I am glad to see that another economist, Pat McArdle, in the same paper, is beginning to throw some light of realism on the NAMA deal, saying that the taxpayer is hardly at risk, even if we ignore the government’s promise to levy the banks later, or otherwise recover any “loss”. And that’s without (Pat McArdle) considering the gain to the taxpayer, of c. 3% per annum on his borrowings from the banks (current borrowing rate compared to the 1.5% steal proposed for NAMA bonds), and the extra revenue which will accrue to the taxpayer/ exchequer due to the economic multiplier effect of the tremendous liquididy boost to the economy by the liquidation of banks’ assets (including €30 billion held abroad) and the injection of ECB loans to the banks.
When you say ..”.We’re now going to have to face more cuts and taxes that will further reduce economic activity and so the downward spiral has to be halted very soon or otherwise we’ll be brought to our knees…”..I can only propose to you that, no doubt thanks to some very creative thinking by some official inside the Dept. of Finance (- a chap “outside” industry, not an “insider”, as you might point out – ) the downward spiral will be halted , and substantially reversed, by NAMA. (But when will society say Thanks to the poor bank shareholders- the perhaps 100,000+individual shareholders of AIB and BOI – who have lost so much and are to be mugged for more, maybe even wiped out, if Gilmore, Burton, 46+20 economics and finance “professors” (??) and the cream of our media intellectuals have their way ?)
Brian O’Doherty
admin | Sep 4, 2009 | Reply
Why did the banks choose NAMA if that is the case? Why not say “thanks – but no thanks, we’re ok on our own”.
JC | Sep 26, 2009 | Reply