Unwind NAMA and let the ECB off the hook

This is a post I sent to IrishEconomy.ie blog today:


To all, and especially those who recently insisted that we could keep on issuing NAMA bonds….The situation is very clear:
It’s the ECB that wants a bail out!!
THEY, themselves, want to be “bailed out”, of the alleged obligation on them to keep on cashing NAMA bonds (which they most probably never agreed to, but the Irish government has managed to impose on them)
So, ECB wants the Irish government to find some other way to handle the bank liquidity problem..OK?…Even if it means that the EU must extend loans to Dublin.

So, we must unwind the NAMA scheme–at least for not yet nationalised banks- because it is that scheme that has seriously damaged our credibility. (What do you think bond investors think of us when we put our sovereign guarantee on joke bonds..bonds that “mature” in six months when the issuer has no chance of redeeming them for many years, bonds that the issuer pays 1.5% on, when his real risk rate is a large multiple of that, bonds with no firm redemption (for cash) commitment, for any date ?? This is what’s damaged our credibility).

And this is what is extremely difficult to recover from politically. Just look at the damage we have done to our better banks…forcing them, uniquely in the world, to mark €80 bn. to market when loans still have years to run, etc. The European bond investors like schemes wherein governments support banks, not ruin them and keep them private, not nationalise them, and show some sophistication in handling liquidity problems, in discussion with partners, not landing partners with bag loads of joker bonds worth less than Monopoly money. They must think the people in charge of our banking sector and economic policy are idiots.

So, unwind all that, apologise, fall on swords, etc. In just handing property back to BOI-AIB alone we save perhaps €20bn. of future NAMA (=State perceived) obligations…or c. 15% of the National debt v. GNP ratio… in a few strokes of the pen. Here’s more detail : http://brianodoherty.ie/wp/featured/2010/11/stop-committing-economic-suicide..-as-follows/

After that,. Investors will see that a deficit reduction of €6 bn. is in fact a very big step towards resolving the structural fiscal problem and should enable us to get back into the bond market at a fair price. If not, then we can go to the EFSF.

So, then, what to do about the banks liquidity problem? Maintain the guarantee for a while—it already duplicates the NAMA guarantee anyway…and discuss sensibly with the ECB and partners some resolution of the (short term) problem. The solution is out there and some of the brilliant minds who contribute to this blog will find it, if they start thinking positively and even if MK can’t see it.

And one more very important thing we must do for national credibility in this matter…Someone must advise the Governor that his job is to defend the national banking sector, not go around offering it for sale abroad!

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