Odds and Ends
NAMA – the questions looking for amendments
Although NAMA is going ahead, many issues and questions still remain. More than 135 amendments have been suggested at the debate stage. Here are some of the issues that need to be addressed on behalf of the public. Some of theses come from a list I “tweeted” to Prime Time last night after @marklittlenews asked for questions, some from friendly experts willing to answer my endless questions, and some from concerned members of the public.
Please feel free to add your comments/ suggestions, concerns and correct me if I have anything wrong. However, no jargon is allowed.
The government is spending your money – and gambling with your children’s future – so you have a right to have your voice heard. Please comment.
The questions:
1. Form: Why is NAMA a commercial entity? This lacks transparency and accountability…not open to scrutiny by public or journalists.
SPVs are dodgy accountancy vehicles used by Enron and Worldcom to hide funds. At their most basic, they just move numbers from a public spreadsheet to one that’s encrypted with a password. Has a Wizard of Oz feel to it: “Don’t look behind that curtain, there’s nothing there”. This does not really give you confidence in their overall purpose does it? International investors will not be fooled.
The shares in these SPVs will be held by 49% by NAMA and 51% private investors. So, who will own the majority shareholding of the SPVs – banks, pension funds, developers – and will their interests be in the public interest? Doubtful. A potential conflict of interest? Most certainly.
2. Valuations: prices to be paid by government for bad bank loans is out of whack with reality and it increases the risk of reinflating the property bubble. As a commercial entity, it seems strange that NAMA would buy property at more than it’s worth. It’s a bit like a business owner going into an auto showroom, looking at price tag and saying: “I’ll pay you 30% over the sales price” for that transit van. It does not make commercial sense.
3. Risk sharing: this is the really scary thing. The risk is still on us, the taxpayers – not on the risk aware shareholders who bought the stocks or the experienced bondholders – who were unaware of the gamble they were taking by electing a government who “looked the other way” when developers, business people and bankers were gambling BIG MONEY using risky derivatives called CFDs. Our regulator was like Homer Simpson at the controls of the Springfield Nuclear Power Plant.. snoring away. (See Lessons from the D’Oh School of Economics” on this blog)
4. Cost: a huge burden is being placed on every taxpayer to fund this open-ended money pit. Our services will be cut and our children forced to emigrate – once again – to find work. Is it really worth the price? There ARE other, quicker, ways to get the economy moving.
5. Transparency: Where is it? Nama is getting muddier, and more complex, by the day. If you can’t explain something clearly then it’s possible you’re either trying to hide something or do not understand it yourself. Either way, it’s not a good governance strategy.
6. Time: will it take a generation to unwind? What does that mean for our health as a nation?
7. Teeth/ Consequences: will Nama take a tough enough line on valuations and developers? This is crucial. Will any property developer, banker go to jail, go broke, etc. as a result of NAMA actions.
8. Money, money, money: the banks do not have enough money in the coffers, or capital. What capital ratios are banks are obliged to have now and in the future? (The capital ratio is the percentage of a bank’s cash on hand to its risk-weighted assets, or the stuff they have that can be converted into cash.)
9. Future funding: Will Nama lead to a large shareholding in the main banks if they can’t raise private equity? They have no cash.
10. Cash flow: The biggest question of all – since it’s the purpose of Nama – how EXACTLY will it lead to more money flowing to businesses?
11. Supervision: Who will set and monitor the costs for running NAMA – including consultants’ professional fees – to ensure value for money, transparency, accountability? Will it be the Comptroller & Auditor General, Irish accountancy firms or independent international audit companies?
12. Stability: will NAMA force banks to split in two – commercial and investment – to ensure no bank is “too big to fail” ever again? A purely commercial bank focuses on consumers’ needs and ensures good lending practices. Investment banks can take all risks – and the consequences good and bad – without jeopardising the economy.
Paul A. Volker, former Federal Reserve chairman who is also one of the architects of Obama’s economic strategies thinks this is essential for the recovery and stability of the US financial system.
13. Control: Will NAMA give the government more, or less, control? The government is seems currently unable to force bankers, developers to pay back funds, face criminal charges, hand back bonuses… so will NAMA give them more control over those issues than partial, short-term nationalisation?
14. Future stability: In future, will banks be forced to save a certain percentage of all deposits/ funds in their coffers (”fractional reasoning” – usually 13%) before they invest/loan the rest? Usually, when they take in €100 they keep €13 rainy day money and loan out of invest the €87. At height of boom they lent/ invested ALL of it, leaving the vaults empty. Now they are borrowing money so they have something in the vaults when the government, and international observers, comes for a look-see.
15. Regulation: Will NAMA suggest new regulations to ensure this mess cannot happen again? Is this in its remit or will lessons be lost due to “gagging” clause?
US regulators may be given power to take over failing firms that pose a risk to the entire financial system and unwind the firm’s derivatives contracts, pay the parties less than what they’re owed, or transfer the contracts to another, healthy financial firm.
http://www.huffingtonpost.com/2009/11/03/new-too-big-to-fail-bill_n_343818.html
16. Accountability: why aren’t the boards of the banks gone? Will NAMA have any power to force out those who were on boards at time of reckless lending? Why are we still funding Anglo Irish Bank and Irish Nationwide? They are not of systemic importance to the economy.
17. Conflicts of interest: the people needed to do the NAMA job are property, banking and legal experts yet they have the most to gain. How can conflicts of interest be avoided?
Interesting issues raised by others:
Complexity: Hugely complex project management/ organisation challenge faces Nama valuers: http://www.garrymiley.com/2009/07/31/WhatIsTheStars.aspx
Secrecy/ Gagging clause: “hope you cover the clause forbidding NAMA from criticising govt. A corollary of blasphemy prohibition?!” From a tweet to @marklittlenews.
Please add your views here….
Tags: blog, Business journalism, Fianna Fail, financial journalism, Frank Fahy, Green Party, Irish politics, Joan Burton, journalism, Labour, Leviathan, Mark Little, NAMA, opinion, Prime Time, Sen Dan Boyle, twitter Discussion
One comment for “NAMA – the questions looking for amendments”
Post a comment
More Strong Language
Featured Posts
Margaret. Like this list. I think it certainly taps into alot of the paranoia surrounding NAMA amongst the Irish public, and so I’ve linked to it on my own site, hope you don’t mind. Funnily, as the budget approaches, our memory fades quickly and it seems to me that the NAMA issue has reduced in prominence. Defo less column inches. Of course I expect as soon as it becomes enacted it will be firmly in the spotlight again.