NAMA can’t afford to redeem its own bonds

It seems to me to be improper for the State to guarantee the bonds being issued by NAMA-SCAMA, when the said organisation does not have the readies to redeem them at maturity and the State also is blatantly obviously unable to pony up tens of billions of euros for the same purpose if its guarantee is called. Such imprudence on the State’s part is likely to be eventually twigged by investors (and the ECB) and will result (or has resulted) in the State’s loss of credibility and the NAMA scheme’s collapse along with the banks it should have been trying to support. In reality, the Good NAMA has become the BAD NAMA and brought down the banks with it, ruining shareholder value (and, according to some stories floating around at the recent AIB EGM) even causing some suicides among very distressed elderly shareholders.

NAMA was meant to operate like an old-style Fianna Fail “good stroke”, in which the government would pretend to negotiate a rescue for banks with the ECB via a special ERB-funded “liquidity scheme”. In effect the government would use a pre-existing ECB liquidity scheme for Eurozone banks (which operated between the ECB and the banks and had nothing to do with governments) by giving the Irish banks NAMA bonds which they could use as collateral for borrowings from the ECB. In exchange the government takes tens of billions of property from the banks, at distressed market values, which it can hold or sell at its own leisure, with the banks paying overhead costs. So, it actually pays the banks nothing in real terms but leaves them hoping that the ECB will lend them money. And, the government gets credit, and the banks get abuse, for this scam, which is branded as a “bail out” . Yes, a good stroke and lets bash the banks!

The problem is that this was not agreed with the ECB…Instead, the liquidity problem (version: Irish solution) was dumped onto the ECB, which in any case only lends short term (6 months or maximum a year). There is no guarantee that after 6-12 months the banks loans from ECB will be rolled over, for the many years it will take for NAMA to eventually redeem the bonds and thereby pay for the property it has taken. Meanwhile, the banks have been forced, uniquely in the world of banking, to recognise enormous losses up front, without the benefit of a future rise in values. (Other banks around the world have lost more, you know, but don’t have to recognise the losses all in one go, upfront !) So, international investors see Irish banks being in a position where they must sell off their profitable businesses to raise immediate capital and also have no certain route to medium term funding, other than the guarantee of an almost bankrupt Irish exchequer. The last straw is when the government values the shares of the biggest bank at 50 cents, six times lower than even last years peak, and therefore effectively wipes out 90,000 elderly shareholders across the land.

It wasn’t the banks that brought down the State: it was vice versa.

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