# A NAMA for the people?



## Booter (14 Oct 2009)

I have had this idea floating around in my head for a few days - any reasons why it might/might not work? This is it:

Issue the €54bn NAMA bonds directly to the adult population of Ireland. (Or in their names) Absolutely even distribution, with no exceptions. Then, along with the current conditions which attach to the proposed NAMA bonds, add these:

1. Bonds can only be redeemed at nominated participating banks in the form of loan redemption/downpayment, OR paid into a long term low yielding account which cannot be accessed until such time as NAMA is wound up.

2. Bonds cannot be directly redeemed for cash value

This method delivers exactly the same amount of NAMA bonds to the same banks, and they can present them to the ECB in exactly the manner as is currently proposed. The big differences are:

- Rather than simply hoping that this money finds its way from the banks into the real economy, we are forcing this to happen, by issuing it to the banks THROUGH the real economy

- Each and every adult in the country benefits to the tune of <their share> 

- Negative equity problem reduced somewhat

- Pay cuts less painful for all in society

Moral hazard I do not believe is an issue in this scenario, for two reasons:

1. Everyone is getting the same amount
2. The fact that it can be overlooked for bondholders and shareholders of banks, who backed a losing horse and are still to recieve not just their stake back, but a a premium on top, makes the whole moral hazard argument somewhat moot in this case.

So, why not?


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## Protocol (14 Oct 2009)

With NAMA, the banks give their loan assets to the Govt, and receive NAMA bonds in return.

The State have a liability of NAMA bonds, and a new asset of property loans.

With this proposal, the State seem to have a liability to the people, but no asset in exchange????


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## Protocol (14 Oct 2009)

Indiansign said:


> I have had this idea floating around in my head for a few days - any reasons why it might/might not work? This is it:
> 
> Issue the €54bn NAMA bonds directly to the adult population of Ireland. (Or in their names) Absolutely even distribution, with no exceptions. Then, along with the current conditions which attach to the proposed NAMA bonds,
> 
> ...


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## Brendan Burgess (15 Oct 2009)

I am missing something. What are your proposing? 

1) the government issues bonds to the people.
2) The people pay for these bonds with cash. Mosto of us don't have this cash, so it can't work. 

Brendan


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## Booter (15 Oct 2009)

...and the bits I left out...


- The property loans still transfer to NAMA; that's the price the banks pay for the bonds

- The people do not pay for the bonds, as they already own them (the state)

I see that there's a difficulty in that the banks can be seen as having to pay twice for the Bonds..as I said its an idea that's been floating around...in hindsight not fully formed..maybe there's some way we could address this...anyone else want to chip in here?


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## Brendan Burgess (15 Oct 2009)

Hi Indian 

NAMA will be issuing bonds to the banks. 

The banks will have these bonds as assets instead of doubtful loans. 

NAMA will pay interest on these bonds

They will be able to raise ECB money using these bonds as security. 

There is no role for the citizens in this, as far as I can see.


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## Booter (15 Oct 2009)

Brendan said:


> Hi Indian
> 
> NAMA will be issuing bonds to the banks.
> 
> ...




Brendan, 

What I have been toying around with is the notion of amending the current plan (which you've summarised above) to somehow route the NAMA bonds through the real economy on their way to final destination...ie the banks. And if citizens get a direct benefit from any such routing then so be it. There does seem to be an abhorrence, based on moral hazard, that any Joe Soap could get "something for nothing", however the bondholders and shareholders are certainly getting an undeserved benefit from NAMA. Maybe there is some model by which we could *ensure* that some benefit accrues to the citizens of the country as well as the banks - I freely acknowledge that my vague notion might not be it.


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## shanegl (17 Oct 2009)

The citizens are going to pay for it. Someone has to pay for it, so if not them, who? Certainly not the bondholders!


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## Complainer (17 Oct 2009)

Brendan said:


> They will be able to raise ECB money using these bonds as security.


As I understand it, the ECB commitment to provide money against these bonds only runs for six months. They may or may not choose to continue to honour the bonds in future.


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## Booter (18 Oct 2009)

Complainer said:


> As I understand it, the ECB commitment to provide money against these bonds only runs for six months. They may or may not choose to continue to honour the bonds in future.



When do the bonds actually mature anyway. I mean an IOU of €54bn  must have a date by which we actually have to stump up the cash?


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## z109 (18 Oct 2009)

Complainer said:


> As I understand it, the ECB commitment to provide money against these bonds only runs for six months. They may or may not choose to continue to honour the bonds in future.


I think it is more that the ECB are only committing to providing unlimited repo operations for the next six months (the exceptional measures that they have brought in for the crisis). After this, the NAMA bonds will be looking for repo either at the more limited ECB mechanism (the standard repo operations the ECB performs to add liquidity as required) or on the interbank markets.

NAMA bonds are sovereign debt. They have a marketable value. They are therefore eligible collateral for ECB repo operations. They are no different to any other sovereign debt that any eurozone state issues. There is no special deal. The ECB are not specifically bailing us out, they are bailing out all the eurozone governments. Most eurozone governments are at least stabilising. The ECB will withdraw their exceptional measures.


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## Complainer (18 Oct 2009)

yoganmahew said:


> I think it is more that the ECB are only committing to providing unlimited repo operations for the next six months (the exceptional measures that they have brought in for the crisis). After this, the NAMA bonds will be looking for repo either at the more limited ECB mechanism (the standard repo operations the ECB performs to add liquidity as required) or on the interbank markets.
> 
> NAMA bonds are sovereign debt. They have a marketable value. They are therefore eligible collateral for ECB repo operations. They are no different to any other sovereign debt that any eurozone state issues. There is no special deal. The ECB are not specifically bailing us out, they are bailing out all the eurozone governments. Most eurozone governments are at least stabilising. The ECB will withdraw their exceptional measures.


Thanks for clarification.


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## paddy26 (25 Oct 2009)

I have been thinking about this for a while.  The figs are based on the best info I could obtain on the internet.  

My suggestions are:

The government takes all property development loans into NAMA at the market value as determined by international valuers as is currently planned.

The government advances to the banks 20% of the value of all residential mortgages (excluding investment property loans) on their books.  The bank reduces the amount outstanding by borrowers by this amount (works the same way as a debt repayment)  This reduces the loans on the banks books thus increasing their capital. There is circa €115 bn of mortgage outstanding therefore this would cost the government €23bn . 

The cost of servicing this would be €575 million per year (assuming a ECB average rate of 2% plus .5% for the first two years of the plan).

Reduce stamp duty to 1% on residental owner occupier property (new and old). This will act as a stimulus to the market. 

Give a stamp duty holiday on commercial property where the rate is reduced to say 2.5% for a period of 12 months.This will allow some sales to international investors and allow NAMA related loans to be repaid.

Benefits:

1. Reduced debt outstanding allows people in less than 20% negative equity to move home thus getting the housing market moving.

2.  Reduces interest payments for home owners

3. Fund it via NAMA bonds at ECB + .5%.  

4.  Avoids having to recapitalise relatively clean banks who have capital issues (ie IL&P).

5.  Gives banks funds to lend again to home buyers.  This will help get the residental property market moving again and allow some developers to repay NAMA related loans.  The banks would need to sign up a lending agreement based on certain criteria (ie max LTV 90%, income to loan of 4 times etc). This would keep the market from overheating again.

6.  A housing market that is functioning will increase VAT and Stamp Duty receipts.  It will also slowly increase employment (estate agents, brokers, banks, construction workers etc)

How to you pay for it.

1. Abolish mortgage interest relief. This would save €705 million per year and pay for the cost of financing above in full.   Use excess over interest to repay NAMA bonds.

This reduces monthly interest payments for certain home owners thus making it more palatable for the tax payer to buy into the solution.  In some case the loss of mortgage interest relief may be more costly than the interest reduction. In most cases mortgage holders will accept this as their debt obligations have been reduced.  The way to sell this to the public is a reduction of capital and a removal of a lot of the negative equity.


2. The government removes the exception for CGT on PPR.  This will bring back in some revenue to the government over time.   While unfair for people with little or no mortgages (they dont benefit from 20% reduction in ourstanding debt) it does result in those who can afford to paying more.

This plan will allow home sales to start as less people are in negative equity.   This won’t solve the entire negative equity problem but will go someway towards it.

I also think it would be worthwhile to remove the redundacy rebate to employers. They dont offer this in the UK and acts as a sweetener to certain companies to lay off staff at minimum cost.  These funds would be better used in re-skilling workers or employment subsidies


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## Duke of Marmalade (25 Oct 2009)

paddy26 said:


> The government takes all property development loans into NAMA at the market value...there is circa €115 bn of mortgage outstanding therefore this would cost the government €23bn.


 
As I understand it, the capital requirement for mortgage assets is about 4% of their book value. Thus if €23Bn are bought back that would reduce the banks' capital requirement by less than €1Bn. Buying NAMA assets at market value would leave a far greater hole than that. I think you my be thinking that the whole €23Bn would go towards capital, in which case you are mistaking funding for capital.

Moreover, the €23Bn would most definitely be an increase in Government debt. In the case of NAMA it can be argued that this is balanced by assets and indeed the EU has agreed that NAMA bonds do not increase the government's net indebtedness.


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## paddy26 (25 Oct 2009)

Thanks for your reply. What % of the investment and development land loans apply to capital in the banks?

In relation to the assets being swapped as it is the tax payer who are ulitmately getting the benefit this could be funded by the public finances. Whether the ECB would allow the NAMA bonds to be used would be a different story.

If the banks only re-lent the €23 bn to the first time buyer market over say three years this would clear the backlog of say 100,000 house (assuming loans of €230k) and also result in a lot of NAMA related loans being repaid.


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## darag (25 Oct 2009)

So the government borrows 23 billion in order to pay-off mortgages for property owners?  This would provide a great incentive for people to simply sell as they get to pocket a free 50k on average per sale (I'm not sure what the current average house price is).  The 50k then has to be paid for by ALL future tax-payers.

Half the holiday homes in the country would be put up for sale as would half the investment portfolios.

Not a great proposal, in my opinion.


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## paddy26 (25 Oct 2009)

Darag,

I excluded all investmen properties to avoid this problem. On PPR would qualify. Also CGT on PPR would result in 25% of any gain going back to the state.


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## DerKaiser (4 Nov 2009)

Here's my NAMA for the people for what it's worth:

John and Mary have a €300k mortgage on a house worth €200k and cannot keep up with the repayments due to wage cuts and/or job loss.  

The bank pays John and Mary €200k for their house and rents it back to them on a 5 year lease.  

The additional €100k is still owed by John and Mary, but frozen for the 5 years.  

At the end of the 5 years they have the right to buy back the house for €200k but will start back with the €300k mortgage, otherwise they will need to start to address the €100k they owe.


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