# The Fine Gael alternative to NAMA



## Lee Fields (25 Aug 2009)

Is there any merit in the Fine Gael proposal:

_Fine Gael will oppose the NAMA legislation published by Government as currently drafted, because it is a request for a €90 billion blank cheque to gamble our children’s future by buying toxic developer loans from banks at inflated, sweetheart prices, and because this approach will not generate the immediate improvement in credit conditions that our small business sector desperately needs._
_We believe that there is a better way. If restoring credit flows is the prime objective of banking policy, taxpayer investment in a new, State-owned bank with a clean balance sheet and an appetite to lend, such as Fine Gael’s proposed National Recovery Bank, would be far more likely to succeed at a fraction of the risk. Future losses by the banks should be absorbed first and foremost by their investors and bond-holders, not by the Irish taxpayer_


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## steviel (25 Aug 2009)

*Re: An alternative to nationalization - give the government options*

It is based on very nice theory and wont work in the real world.  Are Fine Gael actually proposing that international investors and holders of senior debt in AIB and BOI do not get paid back?  Well, as they rank equally with depositors (you and me) that opens a whole can of worms.  If the good assets are taken out, the bad assets will not be enough to repay international investors at the senior level, let alone the subordinate.  So how are these same investors going to be persuaded to fund a 'new' bank if they have just been screwed by Ireland!!!  And if FG dont care about the international investors, and are suggesting that the bank will be funded by retail depositors and the ECB alone, it will not be able to provide the credit that we need

It is a nice idea, and a very convenient plan in that it will never work but they can use it to beat up Lenihan, but the idea that you can fix this problem with a €2bn (I think that is what was suggested) cheque is laughable!!  how do they get from €90bn to €2bn?!?!?  I dont think that they fully thought it through


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## Duke of Marmalade (25 Aug 2009)

*Re: An alternative to nationalization - give the government options*

_Stevie_ boy, that was beautifully put.   I have labelled this FG idea the "fantasy silver bullet".  It is despicable, if understandable, populism on the part of FG to suggest that we can lump this problem on the bondholders but what really sticks in the craw is that academics like Brian Lucey also pedal this nonsense.  Or can someone explain why _Steviel's_ argument is unsound?


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## Purple (25 Aug 2009)

*Re: An alternative to nationalization - give the government options*



steviel said:


> It is based on very nice theory and wont work in the real world.  Are Fine Gael actually proposing that international investors and holders of senior debt in AIB and BOI do not get paid back?  Well, as they rank equally with depositors (you and me) that opens a whole can of worms.  If the good assets are taken out, the bad assets will not be enough to repay international investors at the senior level, let alone the subordinate.  So how are these same investors going to be persuaded to fund a 'new' bank if they have just been screwed by Ireland!!!  And if FG dont care about the international investors, and are suggesting that the bank will be funded by retail depositors and the ECB alone, it will not be able to provide the credit that we need
> 
> It is a nice idea, and a very convenient plan in that it will never work but they can use it to beat up Lenihan, but the idea that you can fix this problem with a €2bn (I think that is what was suggested) cheque is laughable!!  how do they get from €90bn to €2bn?!?!?  I dont think that they fully thought it through


Add to that the immediate collapse of the existing banks (the moment the new “good bank” is announced) and the simple logistical problem of every business, small and big, in the country looking for a new bank the same day.


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## Mpsox (25 Aug 2009)

*Re: An alternative to nationalization - give the government options*

I was watching Fr Ted on DVD over the weekend and it suddenly became crystal clear what the FG view on NAMA is
-Down with that sort of thing


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## Brendan Burgess (27 Aug 2009)

It is a pity that Fine Gael are not engaging properly with the process. The language used is deplorable.

_"a €90 billion blank cheque to gamble our children’s future by buying toxic developer loans from banks at inflated, sweetheart prices_"

However, the plan does have one advantage over the various NAMA proposals. The objective of NAMA is to have well capitalized banks lending to businesses and the economy generally. It is unlikely that a shareholder owned AIB, for example, will start lending again any time soon. A government owned good bank set up for the purpose of lending might be worthwhile.

However, it would be an addition to NAMA, and not a substitute for it.


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## jhegarty (27 Aug 2009)

*Re: An alternative to nationalization - give the government options*

How much exploration has been done on a the concept for a good bank ?

Why is it not a runner ?


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## Purple (27 Aug 2009)

Brendan said:


> However, it would be an addition to NAMA, and not a substitute for it.



 Isn't that the key point in all of this; one way or another NAMA has to happen.


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## BeanPole (27 Aug 2009)

Purple said:


> Isn't that the key point in all of this; on way or another NAMA has to happen.


 

+1

Was listening to the discussion on these FG proposals on Today FM at the weekend, and they were torn to shreds by the commentators.

Typical of the sort of nonsense that FG come out with. The opposition in this country is so feeble, that there is a real risk that FF/Labour would get in at the next election. What a disaster that would be !


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## Shawady (27 Aug 2009)

Purple said:


> Isn't that the key point in all of this; on way or another NAMA has to happen.


 
I think even the 46 economists that wrote the letter in the IT are not against NAMA, just in it's current format.
So are the 2 options proposed by most of the 'experts' NAMA or NAMA plus nationalisation?

How does the FG plan fit into this? Is that a compltetely seperate 3rd option?

Where is George Lee these days? Given his background you think he would be out fronting the FG plan if it has merit.


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## BeanPole (27 Aug 2009)

Shawady said:


> Where is George Lee these days? Given his background you think he would be out fronting the FG plan if it has merit.


 
Georgie boy is evidently enjoying the long Dáil Summer hols. 

Not a peep out of him since the election. FG have been parachuting in celeb candidates for years and years, most of whom (Austin Deasy being the honourable exception) quickly disappear into the back benches.

No wonder they keep losing out to an inept government.

Still, I suppose we get the government we deserve.


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## Complainer (27 Aug 2009)

*Re: An alternative to nationalization - give the government options*



steviel said:


> So how are these same investors going to be persuaded to fund a 'new' bank if they have just been screwed by Ireland!!!


I'm sure these smart investors will know that they haven't been screwed by 'Ireland', they have been screwed by the Directors and management of the banks in which they invested, and the property developers to which those banks loaned money. The Irish people did not screw the bond investors.

Once again, we see a huge dichotomy between how people are treated. If you are on minimum wage,  or social welfare, then it's your own fault, and you are fair game for a cut to have food taken off your table. Yet if you are a senior investor in a bank, then god forbid that we do anything that might offend you. What happened to the 'free market' ensuring efficiency and effectiveness?


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## csirl (27 Aug 2009)

*Re: An alternative to nationalization - give the government options*



Complainer said:


> I'm sure these smart investors will know that they haven't been screwed by 'Ireland', they have been screwed by the Directors and management of the banks in which they invested, and the property developers to which those banks loaned money. The Irish people did not screw the bond investors.


 
I agree. Commentators need to divorce themselves from the socialist idea that the country owns everything. Investors look at individual companies on their merits. They will invest if there is money to be made. In fact the likes of pension funds are mandated to invest to give the best return. 

It may not be a bad thing making investors wary of investing in badly run banks.  And if a good bank is created, I think it will be very attractive to investors - none of the credit crunch baggage that most banks worldwide are carrying.


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## Shawady (27 Aug 2009)

BeanPole said:


> FG have been parachuting in celeb candidates for years and years, most of whom (Austin Deasy being the honourable exception) quickly disappear into the back benches.


 
Maybe so, but given that Lee is an economist, it would give their plan more credibility if he was out explianing it. It's unlikely FG would have ran with this without Lee being involved.


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## csirl (27 Aug 2009)

This may seem a bit simplistic, but isnt the "everyone will have to change banks" argument a red herring?

Surely if any of our banks go bust, the "good bank" would be able to purchase their assets including premises, good customers etc. at a song from the liquidator thus gaining a ready made network of branches and customers and meaning that customers of existing banks dont have to change accounts etc.


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## Padraigb (27 Aug 2009)

csirl said:


> This may seem a bit simplistic, but isnt the "everyone will have to change banks" argument a red herring?
> 
> Surely if any of our banks go bust, the "good bank" would be able to purchase their assets including premises, good customers etc. at a song from the liquidator thus gaining a ready made network of branches and customers and meaning that customers of existing banks dont have to change accounts etc.



It could not be done overnight.


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## Brendan Burgess (27 Aug 2009)

Shawady said:


> Maybe so, but given that Lee is an economist, it would give their plan more credibility if he was out explianing it. It's unlikely FG would have ran with this without Lee being involved.



It is extraordinary that he has been so quiet - or completely silent. 

What about Richard Bruton. I have heard him a bit, but not much. 

 I suspect that the media are probably not giving much credence to the FG plan.

Brendan


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## Purple (27 Aug 2009)

*Re: An alternative to nationalization - give the government options*



Complainer said:


> I'm sure these smart investors will know that they haven't been screwed by 'Ireland', they have been screwed by the Directors and management of the banks in which they invested, and the property developers to which those banks loaned money. The Irish people did not screw the bond investors.


 That’s a valid point but if they stay away from the banks then we are still screwed.



Complainer said:


> Once again, we see a huge dichotomy between how people are treated. If you are on minimum wage,  or social welfare, then it's your own fault, and you are fair game for a cut to have food taken off your table. Yet if you are a senior investor in a bank, then god forbid that we do anything that might offend you.


 Yes, it is very unfair (though I haven’t seem too many regular posters suggest “If you are on minimum wage,  or social welfare, then it's your own fault”). I have seen many posters say that we cannot afford to pay what we are paying (notions of “fair game” don’t come into it).



Complainer said:


> What happened to the 'free market' ensuring efficiency and effectiveness?


 Banks don’t operate in a free market, they are (or at least should be) licensed and regulated by their respective central banks. 
It would be great if we could just let them fold but unfortunately we can’t. 
In the context of the mess we find ourselves in I would love to see the corporate and political culprits spend long spells in prison but I don’t hold out too much hope. I don’t even think they will suffer financially.


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## Mpsox (27 Aug 2009)

There's a fundamental issue with the FG plans, they can't say how much it will cost. They're basically saying no to NAMA and follow our plan even though we have no idea what the price will be


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## Complainer (27 Aug 2009)

Mpsox said:


> There's a fundamental issue with the FG plans, they can't say how much it will cost. They're basically saying no to NAMA and follow our plan even though we have no idea what the price will be


Do we know what the NAMA option will cost?


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## Mpsox (27 Aug 2009)

Complainer said:


> Do we know what the NAMA option will cost?


 
No we don't, which is one of the fundamental reasons people object to it. As far as I am concerned, same applies to the FG options


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## Duke of Marmalade (28 Aug 2009)

Richard Bruton explains the FG proposal in the IT today.

He would split a troubled bank in two. The bad half would get the toxic assets and the the risk takers liabilities.

The good half would get the customer deposits, inter bank deposits, mortgages, good loans, most of the staff, money transmission system etc. etc. and would live happily ever after.

This is sheer baloney and he knows it. There is not nearly enough risk taking liabilities on the balance sheet to match the toxic assets - that is the problem.


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## dtlyn (28 Aug 2009)

Duke of Marmalade said:


> Richard Bruton explains the FG proposal in the IT today.
> 
> He would split a troubled bank in two. The bad half would get the toxic assets and the the risk takers liabilities.
> 
> ...



They had a stab at what is an extremely complex topic and failed miserably, instead looking amateurish and clueless. Would it not have been more pertinent to align themselves with the "46" ( or at least a portion thereof who would be willing to take a political line on their academic opinions ). 

I'm not in agreement with the NAMA setup as (I understand) it exists. My biggest problem is the balancing act between asset discounting and bank insolvency ( would that be the right term, I mean - requiring re-capitalization or nationalization ). There is a stand off here whereby the banks are in the driving seat. 

If the key to nationalization/recapitalization is solvency, what part of NAMA legislation requires that the banks cannot use whatever means necessary to position themselves as "insolvent" in the future, thus forcing the governments hand i.e. to a) recapitalise/nationalise or b) over price assets. 

Option a) seems unlikely given the governments well publicised distaste for it. Furthermore, if nationalisation results in investors returning zip/zero from any holdings in any of the banks, in what way would that positively affect any government minister with any kind of bank investments ( direct or indirect ). Surely there is a conflict of interest here?


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## Brendan Burgess (31 Aug 2009)

Folks

It's hard to separate the various strands into separate topics, but it is worth trying to do so. Please try to stay on topic.

This topic is about The Fine Gael alternative. Posts which discuss this but compare it with other schemes are ok. But discussing other schemes is not and such posts have been removed. Feel free to make these valid points in new threads.

Brendan


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## Brendan Burgess (31 Aug 2009)

George Lee made no comment on the Fine Gael alternative at today's Dail Committee meeting with the Minister on NAMA. 

Having said that, he was severely restricted in time, so he focussed on questions about NAMA.


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## kaplan (31 Aug 2009)

Richard Bruton gives a useful summary in a statement issued this evening of what FG see as the best available solution to the banking crisis after hearing Minister Lenihan at Committee on Finance and the Public Service and taking into consideration the views of the ECB today:
“The shape of the best available solution to the banking crisis is becoming clearer:
• the need for a mechanism to get credit flowing immediately to business - our wholesale “Good Bank” or National Recovery Bank could be up and running within two months if the political will existed, pushing out lending to SMEs through the branch networks;
• the need to replace NAMA with a public private asset recovery vehicle, in which the private investors - equity and subordinated debt holders - take a significant share of the risk and responsibility for working out the toxic assets;
• the need to drop this dubious concept of “long term economic value” in setting the price for loans to be transferred to an asset management vehicle.”
I still believe that this is the safest and most fair way to deal with this crisis. It is also the one most likely to make the necessary credit available to businesses and households in the shortest time. 
Sorting the banking crisis will take a long time. It’s better to get it right at the start, even if there is a general election, rather than have the citizens of the state unfairly and excessively lumbered with the gambling debts of the few for many years.


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## darag (31 Aug 2009)

At least Richard Bruton seems to understand the concept that spending money rescuing equity and subordinated debt holders should not be a priority.  That's a saving of about 10 billion - not peanuts by any means.  Reimbursing these investors for their losses using future (shrinking) tax revenue will achieve absolutely nothing for the Irish economy and will look like the height of folly in years to come.

As for the senior debt holders taking a haircut, it does NOT mean national default or anything like it and you know it, Duke.  Claiming that this would be an Iceland situation is just mindless hysteria.  Over 100 retail banks in the USA have been allowed to go bust since the start of last year and naturally senior debt holders lost some of their investment.  And the sky hasn't fallen down.


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## kaplan (1 Sep 2009)

FG (Bruton) has clarified it does not propose torching the senior debt only the subbies. Some maintain there is a distinction between the objectives & perceptions of an investor in bank bonds and sovereign bonds. The former is concerned with the bank itself the latter with sovereign risk. Torching subbies may effect bank bond investors but may be seen as a sign of strength by sovereign bond buyers. Nonetheless the Minister is being advised by NTMA and if they are extrenmely cautious about the effects of torching subbies then perhaps they might add to the debate. He did say there was scope for agressive management of subbie debt...

There may be a shift to a new consensus as pressure on the LTEV and sharing of risk builds - NAMA 3.0 may emerge. National Recovery Bank and a revised AMC. The valuation concept outlined during the session has the appearance of a robust approach until you get to the application of LTEV where it becomes nebolous. While ECB legal opinion supports NAMA it does express concerns over two of its most crucial aspects premium pricing (LTEV) and risk sharing -implict in the latter is an understanding that equity providers take a bath -


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## Sunny (1 Sep 2009)

darag said:


> As for the senior debt holders taking a haircut, it does NOT mean national default or anything like it and you know it, Duke. Claiming that this would be an Iceland situation is just mindless hysteria. Over 100 retail banks in the USA have been allowed to go bust since the start of last year and naturally senior debt holders lost some of their investment. And the sky hasn't fallen down.


 
It would be a default of the Irish Banking system though. You can't compare regional banks in the US with BOI and AIB who dominate the Irish economy. It would be like Bank Of America defaulting in the US. Also US risk is completely different to Irish risk in the eyes of investors. If you force senior debt holders to take a haircut, it would destroy the economy. Banks and the State would have to pay massive risk premiums to borrow money if they could borrow at all. This would mean that credit would not be able to flow into the economy at a reasonable cost. To be honest, no sensible person is now suggesting that we touch senior debt. Everyone has backed away from the concept.

FG are right that getting credit flowing has to be the main objective. FF seem to accept. NAMA can accomadate that by imposing lending targets on Banks to ensure they do not sit on the bonds or cash. It doesn't need a new bank to be set up.


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## Duke of Marmalade (1 Sep 2009)

darag said:


> As for the senior debt holders taking a haircut, it does NOT mean national default or anything like it and you know it, Duke. Claiming that this would be an Iceland situation is just mindless hysteria. Over 100 retail banks in the USA have been allowed to go bust since the start of last year and naturally senior debt holders lost some of their investment. And the sky hasn't fallen down.


I will add to _Sunny's_ rebuttal of this erroneous comparison. If a private entity defaults on its senior debt it effectively goes into liquidation. For US regionals this is not the end of the world. But everybody (even FG, Labour, SF) accepts that to liquidate either of our Big Two would mean economic meltdown. The only legal approach which would keep the banking system in place whilst defaulting on Senior Debt would be through Nationalisation, ergo it would be Sovereign Default or, as I prefer, National Default.

Anyway, as _Sunny_ states, thankfully most real world commentators (Brian Lucey excluded) now accept that FG seriously blundered on this and senior debt is after all "sacrosanct".


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## csirl (1 Sep 2009)

> It would be a default of the Irish Banking system though. You can't compare regional banks in the US with BOI and AIB who dominate the Irish economy. It would be like Bank Of America defaulting in the US


 
I disagree. You can compare BOI and AIB to a regional bank in the US. In Eurozone/EU terms, both are relatively small localised banks. Would be no different to two local banks in e.g. Kentucky or South Carolina - both of whom have similar populations to Ireland - going bust.

If you read in the newpaper that Bank of Kentucky and Aillied Kentucky Bank had gone bust, would it worry you?


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## sunrock (1 Sep 2009)

Duke and Sunny and F.F. and F.G. are all adamant that there can be no default in paying the senior bond holders in full. Their argument is that despite the senior bond holders lending to our banks for reckless property speculation ( and they must have known),....essentially it would be worse for us all if the bond holders don`t get back their 80billion or so in exchange for the loan portfolio of the banks.
I am not an expert and can only speculate about the consequences of a default or a partial default.However we can all appreciate the cost of paying back 80 billion over the next generation..100,000e for each family of 5.
Maybe some of the experts posting here could tell us who are the senior bond holders and what individuals or companies they represent and their relationship to the irish banks that they lend money to.The bondholders are clearly in a powerful position.. they have got all the main political parties all facing the same way ..so I think it is only fair that we have some more information about them.


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