We have referred before to the essential immorality of the NAMA scheme, under which bank shareholders must accept a valuation of their equity made by state officials and, if that valuation is sufficiently low, hand over their equity to the same state accordingly, even if, ultimately, the state sells off bank assets at an enormous profit, which is likely. Its some sort of state theft of private property, a theme we will return to.

Today we remind our readers of a big unasked question concerning NAMA. Having done a deal with AIB shareholders to take over certain assets at a valuation of c. 30% less than face value, a deal under which the AIB bank would also be required to sell off overseas subsidiaries and raise extra private capital in order to meet high capital ratio standards, NAMA suddenly declared in September 2010 that, after all, it was not going to value these certain assets at the expected valuation, but at half that, i.e. at a discount of c. 60%. That sudden turn caused the shareholders equity to tumble by c. 75%, any prospective private capital to go away, the bank to fall into state ownership and, eventually, a withdrawal of more than 50 billion of deposits, in spite of a state “guarantee” for these deposits. Naturally the banks Chairman and Managing Director resigned and have said nothing since.

NAMA “blamed” the bank for this sudden change of terms of their agreement.They suggetsed that, at a late stage in the valuation of thousands of individual loan assets, the valuations had to be halved. This is in spite of c. 30% of these loan assets being still in the “performing loan” category and c. 20% or more being related to loans against properties in the relatively booming UK market, where UK banks in the same market have had to suffer only a tiny write down on the values of similar assets. This action by NAMA came as a shock to shareholders and many other observers, including the very professional valuers at investment bank Goldman, Sachs, who had been doing their own calculations around the same time and who ultimately concluded, in a report available to but not mentioned in the Irish media, that, even in worst case circumstances, NAMA’s valuations are “unrealistically pessimistic”. Beyond throwing mud at the reputations of senior management in AIB, NAMA have not commented on this extraordinary turn about. Nor has any Irish journalist investigated the matter, although tens of thousands of Irish shareholders have lost billions as a result of NAMA’s unexplained behaviour. Instead NAMA’s feeble explanation has been accepted meekly by our Business and Economics “editors”.

So, what’s the real story? Well, I don’t know, but I’d like to propose a hypothesis: Officials made an awful botch of the NAMA scheme, and, rather than reveal their incompetence, they are simply letting the banks swing. The scheme was Irelands answer to the banks liquidity problems, emanating from the collapse of Lehman Bros. Rather than “rescue” Anglo Irish Bank alone, officials decided to “rescue” all banks, including relatively sound AIB and BOI, by taking over their long term property assets and arranging for the ECB to provide them cash until such time as these assets could be sold off, years later. Profit on AIB-BOI assets would go towards covering the expected greater losses on Anglo and INBS loans. In return for ECB cash the State would issue guarantees on the NAMA bonds, making them eligible for ECB funding.

It all looked pretty good if it could be worked, but, unfortunately, the officials either didn’t understand the proper role and function of the ECB or failed to properly explain to that institution what would be expected of it in the NAMA scheme. By the time the first short term ECB loans to banks were to be rolled over, the ECB twigged what was up and told the government that the Central Bank of Europe was absolutely not going to be used as a fund provider for a government arranged rescue of Irish banks and that the government must go borrow its own funds and provide them to the banks if they wished to continue the scheme. NAMA therefore was immediately told to stop issuing bonds as far as possible and in the meantime to minimise the amount issued, by imposing the maximum haircuts. The result was that AIB was allowed to virtually collapse into state ownership, in the conspiracy of silence of a very few insider officials, who seemed unconcerned by the losses and stress caused to elderly shareholders, including some suicides. The consequences have included a total loss of private international financial market confidence in the credibility of Irish State guarantees, and in the competence of its officials and the loss of €160 billion of deposits from the financial system. Next to go will be the IFSC, an offshore financial center that, like other such centers, requires international confidence in the quality of management and regulation by the local supervisory authorities.

The one successful manoeuvre of our top financial officials has been to shape the academic commentary against the bankers and completely mis-lead the sheeple in the media.