# NAMA, where will we be in 5 years time?



## tiger (6 Nov 2009)

I think a clearer picture is starting to build of where we are & how the govt intends to tackle things.  The question is where will this leave us in 5-10 years time?  Unfortunately, not in a good position.  My reasoning:

*The Govts approach/assumptions:*
The govt wants to preserve the banks & status quo as much as possible.  There will be no major reforms, purge or jailings.
Both the govt & the ECB want Ireland to remain in the euro.  (This is the primary objective of the ECB).  Hence devaluation is not possible.
The banks are insolvent, NAMA is the ideal solution because:
- The cost is not immediate but rather spread out over time or even rear-loaded.
- The banks can remain in private hands
- This is a short term problem; in 3-5 years time the economy will have recovered and the loans won’t look as bad as they are now.
*The reality:*
The economy will continue to contract beyond 2010.
Employment will continue to stagnate/fall, as our cost base remains high (devaluation is the easy solution here).
Consumer debt default will increase as the savings & ability to cut back of people laid off/on reduced income is eroded.  This will be compounded by interest rate increases in 12 mths time as the rest of Europe slowly starts to grow.
*The result:*
In the short term, strikes and unrest as the govt attempts cut backs this Dec.  They will fall short of implementing the target €4bn, which wouldn’t have been sufficient in any case.
Several emergency budgets next year, as our borrowing grows beyond €500m a week, and the markets start to stop lending.
Longer term, there will be a NAMA II to cater for consumer debt, and a NAMA III because the projected capital repayments for NAMA I aren’t materialising.  (1st 3 years of NAMA are “interest only”?).

Honestly, I don’t see a way out of this.  Any one care to shine some (reasoned) optimism?


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## z107 (6 Nov 2009)

Good post tiger.



> Honestly, I don’t see a way out of this.  Any one care to shine some (reasoned) optimism?



Do I see a tumbleweed?


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## Brendan Burgess (6 Nov 2009)

NAMA is very risky for the taxpayers. There is no doubt about that. It has around a 50/50 chance of working. 

But all the other solutions are riskier. Sure we could just renege on our guarantee to depositors and allow all the Irish banks to crash and allow all the Irish depositors and bondholders lose lots of money. The Irish government would avoid the risk of NAMA, but I would guess that the economy would completely collapse. 



> The govt wants to preserve the banks & status quo as much as possible.  There will be no major reforms, purge or jailings.



The implication of this is that by purging people or jailing them, the problems would be solved. Many of the Chief Executives and Chairmen are gone. 

People can only be jailed for criminal offences. Not for bad management. Not for being greedy. Not for making mistakes. The Gardai and the Office of Director of Corporate Enforcement are investigating some of the issues and will start criminal prosecutions if they are warranted. If the juries find them guilty of criminal offences, the judges will decide if jail sentences are warranted. But they won't be jailed because the public wants to see people going to jail. 

But make no mistake about it, sending a dozen ex-employees to jail may make us feel better. But it won't solve our economic problems.

Brendan


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## MelF (6 Nov 2009)

Wonder if there will be a NAMA 2 for consumer debt. Why not just reform the bankruptcy laws to model them on say American bankruptcy? Would be v unfair to those who have been prudent, but with wages being forced down and cost of v large debt on the way up (when ECB rates go up) the personal debt situation will need to be dealt with.


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## Brendan Burgess (6 Nov 2009)

MelF said:


> Wonder if there will be a NAMA 2 for consumer debt. .



With 12% unemployment, that means that 88% of people are employed. They may be struggling with their debt, but generally most people are paying their debts.   I suspect that lending to individuals is still very profitable for the banks. the banks will take a hit, but not on a scale similar to the property development problem.

Something like 10% of loans are in negative equity. That is only a problem if the borrowers are not making their repayments. Most of the people in negative equity are still working and are still making their repayments. 

When interest rates rise, this problem will get worse. But I doubt if it will be on the scale of property development. 

Brendan


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## tiger (6 Nov 2009)

Brendan said:


> NAMA is very risky for the taxpayers. There is no doubt about that. It has around a 50/50 chance of working.
> 
> But all the other solutions are riskier....


 
That's my problem, what ever about NAMA, I can't see any solution (no matter how radical) that has a good chance of success...



Brendan said:


> But make no mistake about it, sending a dozen ex-employees to jail may make us feel better. But it won't solve our economic problems.


Agreed (though some might argue).  My point though is that we should assume that this will be the case when trying to predict what happens next.


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