# Joseph Stiglitz on Prime Time



## wjc (6 Oct 2009)

If anyone did not see Mark Little's interview with Prof. Joseph Stiglitz on Prime Time tonight I would urge them to view it on the RTE player. He confirms what most of us already know about NAMA, that it is a bailout for bank, shareholders and bondholders. This guy has a Nobel Prize in economics while the people putting us into debt slavery for the rest of our lives can't even add their expenses properly. This Nama being the only show in town is just not true.
http://www.rte.ie/player/#


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## onq (6 Oct 2009)

Well, unless you can come up with alternative that ticks all the boxes it definitely is true.



ONQ.


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## Duke of Marmalade (7 Oct 2009)

The professor preaches that capitalism should be allowed run its course, the banks should be allowed go belly up.  Sorry, not even FG or Labour are arguing that, good academic stuff I'm sure but we live in the real world.

He also argues that NAMA getting its money back in 10 years is really a loss because of time value, he is ignoring that NAMA washes its face in between, I presume he has not read the detail.

Finally, when he goes on about polluting our most precious asset, the air, I become convinced that this is yet another crank academic.


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## rustyjack (7 Oct 2009)

Duke of Marmalade said:


> The professor preaches that capitalism should be allowed run its course, the banks should be allowed go belly up. Sorry, not even FG or Labour are arguing that, good academic stuff I'm sure but we live in the real world.
> 
> He also argues that NAMA getting its money back in 10 years is really a loss because of time value, he is ignoring that NAMA washes its face in between, I presume he has not read the detail.
> 
> Finally, when he goes on about polluting our most precious asset, the air, I become convinced that this is yet another crank academic.


 

umm, i am no economist but i think what he means is that the 55billion or so that the government is borrowing to pay for nama could instead be invested over 10 years to achieve a significant return (after paying the interest due on the loan). NAMA washing its face just means that it can cover the interest on the loan (not guaranteed that it can do this either if the performing loans stop performing). What the nobel prize winning guy and former chief economist of world bank means is that properly invested, 55 billion should generate a significant return over 10 years and which would provide the upside for borrowing such a large amount of money. In contrast, the best we can hope for from nama is that we dont lose money and the worst is that we lose a lot of money.


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## Purple (7 Oct 2009)

While a good understanding of economics is very important for a senior politician an academic qualification in the field is no guarantee that they will be any good at running the economy. Garret Fitzgerald, a man I like and admire, was in his day an economics lecturer in UCD. He holds a doctorate in the field. He was also utterly useless at running the economy. Ray MacSharry had a basic education and worked in the hauliage business. He was perhaps the best finance minister of the last 30 years. The other really good finance minister we had in the last few decades was Ruairi Quinn, an architect.


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## darag (7 Oct 2009)

The dismissive responses lack credibility to be honest as is the comparison with Garrett Fitzgerald.

A Nobel prize is a little bit more of an achievement than being an economics lecturer in UCD.

This guy was head economist for Clinton as well as running the World Bank.

The "real world" gibe is also silly.  In the real world banks are liquidated all the time - I think they've reached a 100 in the US so far this year alone.

Claiming that NAMA will "wash it's face" is disingenuous.  If this were even vaguely probable, there would be no need for NAMA.

Quite a few commentators outside of Ireland have either directly or diplomatically criticised the NAMA strategy including the likes of Bo Lungdren (the guy who steered Sweden out of their mess).


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## Duke of Marmalade (7 Oct 2009)

Okay, _darag_, so you think he's right, capitalism should be allowed run its course, all our banks should be allowed go bust, we should accept the disaster that theoretical capitalism decrees for out of the armagedon we will rise with superb credit ratings, albeit in complete economic chaos


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## DerKaiser (7 Oct 2009)

I found the main thrust of his arguement was based on the fact that in the US you can strategically default on a mortgage with no consequence other than the loss of your home.  The same rules do not apply here.


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## darag (8 Oct 2009)

How about this for an idea, Duke.  Try arguing the simple point I made (that this guy has credibility and that your glib "head in the clouds/academic" dismissal is ignorant) instead of telling me what I believe.


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## wjc (8 Oct 2009)

Just an aside. I bought some Bank of Ireland shares 11 months ago. Since then they have had to write down billions of losses and would be bankrupt only for NAMA. Today my shares are worth 30% more than I paid for them. How can this be fair? NAMA is a transfer of wealth from the  taxpayer to bank shareholders and bondholders. On another point, Arthur Cox solicitors are acting as legal advisors to the Government , Bank of Ireland and NAMA. Same old croneyism is still rife. The NAMA write down was probably decided on the 17th fairway of the K Club! Wake up Taxpayers before it is too late!!


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## Guest116 (8 Oct 2009)

wjc said:


> Just an aside. I bought some Bank of Ireland shares 11 months ago. Since then they have had to write down billions of losses and would be bankrupt only for NAMA. Today my shares are worth 30% more than I paid for them. How can this be fair? NAMA is a transfer of wealth from the taxpayer to bank shareholders and bondholders. On another point, Arthur Cox solicitors are acting as legal advisors to the Government , Bank of Ireland and NAMA. Same old croneyism is still rife. The NAMA write down was probably decided on the 17th fairway of the K Club! Wake up Taxpayers before it is too late!!


 
Where to begin! You should read up on how the stock market works. Just because your shares have gone up by 30% doesnt mean that money have somehow magically flowed out of the Governements pockets and into yours.


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## z109 (8 Oct 2009)

aristotle25 said:


> Where to begin! You should read up on how the stock market works. Just because your shares have gone up by 30% doesnt mean that money have somehow magically flowed out of the Governements pockets and into yours.


Where to begin? Yes it does.

PS It's you pocket and my pocket...


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## Centaur (8 Oct 2009)

I've read this guy's book on globalisation and its an excellent balanced read in which he foresaw a lot of our current global problems. 

NAMA is very risky but we have to move forward.

Anyway realistically our government have no stomach for anything else - it is there way of shoving the problem aside and burying mistakes for now -  so that there cosy existence isn't too upset.


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## Duke of Marmalade (8 Oct 2009)

darag said:


> Try arguing the simple point I made that this guy has credibility...


Remember LTCM? The greatest misjudgement in financial markets' history.  The genius behind that had a Nobel Prize in economics.  Stig is about 9 months behind the current state of play in the Irish debate.  I don't think any political parties are still arguing to let the banks go bust.


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## wjc (8 Oct 2009)

Do not have to let banks go burst. Can nationalise them or "pre-privatise" if that sounds better. "pre-privatise" might sit better with the "haircut" and "nama will wash its face" people. All stiglitz said was that shareholders should be wiped out and that bondholders would receive equity in a debt for equity swap.


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## rustyjack (8 Oct 2009)

Duke of Marmalade said:


> Remember LTCM? The greatest misjudgement in financial markets' history. The genius behind that had a Nobel Prize in economics. Stig is about 9 months behind the current state of play in the Irish debate. I don't think any political parties are still arguing to let the banks go bust.


 
duke, have you read the finegal alternative to nama - reads very like what the stigmeister was proposing. i am not affiliated to any party just pointing out the stigman seems to be supporting the finegael model (finegeal are ven advertising this fact on their website)

duchess of jam


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## Duke of Marmalade (8 Oct 2009)

_Rusty_, I don't want to get caught up in this bondholder debate again, but Fine Gael are now accepting that the amount involved is small (only the subbies). It may satisfy stiggy's theological devotion to capitalism but toasting the shareholders and subholders (more than they already have) does not actually amount to a whole hill of beans.


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## rustyjack (8 Oct 2009)

Duke of Marmalade said:


> _Rusty_, I don't want to get caught up in this bondholder debate again, but Fine Gael are now accepting that the amount involved is small (only the subbies). It may satisfy stiggy's theological devotion to capitalism but toasting the shareholders and subholders (more than they already have) does not actually amount to a whole hill of beans.


okey dokey dukey. not being an expert, it just looks like a number of people are lining up against nama, stiggy, macwilliams etc. 
privatising the gains and socialising the losses were stiggys evaluation of nama.. probably more complicated than that but it looks that way to my non-expert eye. 
rusty


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## Bronte (9 Oct 2009)

While we're on the subject of capitalist, isn't that where if you invest in a business and you make a bad decision you go bust, except in Ireland where you get rewarded for really really big 'investment' decisions that turn sour.

In relation to shares in BofI going up, as I'm rather naive I thought the share increase was directly as a result of taxpayers money being transferred to shareholders but then I'm no economist or expert, only a mere ignorant taxpayer.


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## Latrade (9 Oct 2009)

I think the main problem is that the media are being disingenuous to NAMA in implying the government are saying this is the perfect answer. What they're actually saying is this is the best solution out of a bad lot. It's not perfect, but it's the one that has the potential to have less negatives for Ireland than other models.

Mind I do like Stiglitz, I think he talks sense especially in terms of regulation of a free market. He gets protrayed as a Socialist for showing how historically lack of regulation (and enforcement) has led to major collapses. 

Though if we are to get behind his views on NAMA, as the left seem to, I wonder if they've actually read any of his stuff beyond his CV and the Nobel Prize? Because they'd see that he has written a very good and very convincing piece on how in recession wages must fall. In fact it is the lack of willingness on behalf of employees to accept wages, combined with the employer's concerns at facing possible industrial action, that causes greater unemployment in recessions.

However, it's nice to cherry pick esteemed economists when it suits a particular agenda.


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## goosebump (11 Oct 2009)

All of these commentators are ignoring two hugely important facts about the situation which greatly limit our options.

1. We have to borrow about €100bn over the next 5 years
2. The level of our insolvency (>20% GDP) is much greater than has existed in any other banking crisis (eg Sweden 4% GDP)


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## Barabas (15 Oct 2009)

wjc said:


> If anyone did not see Mark Little's interview with Prof. Joseph Stiglitz on Prime Time tonight I would urge them to view it on the RTE player. He confirms what most of us already know about NAMA, that it is a bailout for bank, shareholders and bondholders. This guy has a Nobel Prize in economics while the people putting us into debt slavery for the rest of our lives can't even add their expenses properly. This Nama being the only show in town is just not true.
> http://www.rte.ie/player/#


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## Barabas (15 Oct 2009)

Actually the real architects behind NAMA are the European Central Bank who are the same folks who are putting up the money to fund NAMA. The Irish Tax payer is skint.
Joseph Stiglitz was asked a leading question - to Ad Lib - "Is it a good idea to pay too much for something?" and he gave the only answer possible. "No it isn't".

He did not confirm that NAMA was a bailout or anything else.

This nebulous area of "paying over the odds for the loans" seems to me to be an absurd topic for the Goverment to have gotten into. The difference between current market value and "Medium Term Economic Value" (ie: our best guess at what it will be worth in the future). People have jumped onto this and said "Haha - we are paying over the odds". The fact is the property market is knackered and the current market value of anything is impossible to calculate.


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## Chris (15 Oct 2009)

Duke of Marmalade said:


> The professor preaches that capitalism should be allowed run its course, the banks should be allowed go belly up.  Sorry, not even FG or Labour are arguing that, good academic stuff I'm sure but we live in the real world.


The reason no political party anywhere in the world is advocating letting free-market capitalism run its course, is because that would mean they would have to do nothing; essentially taking their power of intervention away. If they don't have the power to intervene they have less to do, require fewer jobs for the boys and a lower budget. What all politicians want is the exact opposite.




Bronte said:


> While we're on the subject of capitalist, isn't that where if you invest in a business and you make a bad decision you go bust, except in Ireland where you get rewarded for really really big 'investment' decisions that turn sour.


Your point is what free-market capitalism should be. All the talk you hear about the current crisis being a perfect example of the failure of free-market capitalism is complete and utter nonsense. The economic system that is so miserably failing is Interventionism; had it not been for governements and central banks incouraging risky investment behaviour there would be no need for bailouts, and if governments didn't bail out companies now then very few or no companies would make the same risky decisions in the future.


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## Barabas (15 Oct 2009)

Duke of Marmalade said:


> The professor preaches that capitalism should be allowed run its course, the banks should be allowed go belly up. Sorry, not even FG or Labour are arguing that, good academic stuff I'm sure but we live in the real world.
> 
> He also argues that NAMA getting its money back in 10 years is really a loss because of time value, he is ignoring that NAMA washes its face in between, I presume he has not read the detail.
> 
> Finally, when he goes on about polluting our most precious asset, the air, I become convinced that this is yet another crank academic.


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## Barabas (15 Oct 2009)

I agree with your assessment 

In fact in the full interview he goes on to say that if the bank cannot survive on it's own then it should be Nationalised. A kind of economist double talk - "Let it go bust and then Nationalise it". 

As an Accountant I have to say that most of the Economists and Politicians discussing this topc do not even have the slightest clue how a Receivership works!


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## Duke of Marmalade (15 Oct 2009)

Today's draft business plan is a bit alarming. I still think NAMA is the only g.i.t. but BLe has been a bit economical with the truth.

It does not wash its face i.e. it pays more in interest than it receives.

It needs far more than 10% increase in values to break even. That's because it has to pay excess interest and a whopping €2.4bn in fees.

The business plan itself requires the market value of the properties to grow by over 8% p.a. for 10 years. Hardly conservative.

The Business Plan really does look like a set of figures cobbled together to give an impression of viablility but with no real substance behind the assumptions.

It is quite scary, do we really think 20% default is the extent of this crisis?

Another disturbing aspect is that it will be about 4 years before we have any sense whether this business plan is sound, that is because it is largely assumed that no repayments are made by developers in that period.


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## diarmuidc (15 Oct 2009)

Duke of Marmalade said:


> Today's draft business plan is a bit alarming. I still think NAMA is the only g.i.t. but BLe has been a bit economical with the truth.


So I take it you were expecting something else? 

If the  business plan for NAMA had been: "take €70b in cash and burn it", I wouldn't have been surprised. And the best part, you would still have FF shills claiming that it's the "only game in town" and the economists pointing out that it was a phenominal waste of money, would have been dismissed as ivory tower academics out of touch with the real world.


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## canicemcavoy (15 Oct 2009)

Duke of Marmalade said:


> The business plan itself requires the market value of the properties to grow by over *8% p.a. for 10 years*.


 
Seriously? 

Does anyone believe this will happen?

Even Liz O'Kane?


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## GSheehy (15 Oct 2009)

Duke of Marmalade said:


> The Business Plan really does look like a set of figures cobbled together to give an impression of viablility but with no real substance behind the assumptions.


 
A bit like Zoe then


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## Duke of Marmalade (15 Oct 2009)

canicemcavoy said:


> Seriously? (8% property growth)
> 
> Does anyone believe this will happen?


 
What I did was look at the opening 47Bn of MV and work out what return is needed to generate the Business Plan's 12Bn of Interest, 62.1Bn of repayments and 4.0Bn of asset recoveries. That needs 8.3% p.a. *return* on MV. Two caveats:

On the one hand, return can include any rental income so it is not just price growth.

On the other hand, any returns will vary quite a lot from loan to loan and geography to geography. If we do have such a buoyant decade what we will find is that some properties will more than cover the projected outgoings whilst others will underperform the average. But in the former cases the outperformance will go to the developer so, on average, this NAMA business plan will need an exceptionally good decade for property returns.

This Business Plan looks exceedingly optimistic but *there is no other way*.


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## z109 (15 Oct 2009)

That's funny DoM, because your 8% growth over ten years tallies with my doubling of liquidation values on the non-performing loans to break even on the original investment.

The point to bear in mind is that the maximum that can be gained from a loan is 100% of its value plus the interest paid on it. 

Against this costs of 2.64 bn (to the banks), 16 bn in interest on the 54 bn in NAMA bonds (to the banks), and 54 bn in bond repayments (to the banks) means that NAMA actually has to generate 72.64 bn in income...

To do this, they will borrow up to 6.5 bn, of which 5 bn will be secured on the taxpayer and loan this to the developers to, eh, build some apartments and offices and stuff that we, eh, really, really, need, because, eh, everyone is going to want to come and do tours of our broken hospitals and rat-infested schools. 

The high muckamuck parades will be held every week with our lords and masters in their faux mink and real gold capes showering the huddled masses with pennies for bread. If there is no bread, we will eat cake.

All this pomp and ceremony will be a huge boost to the nations tourism industry, so will employ lots of people. The wages will be well below welfare rates, so only immigrants will want to do them. They won't be able to afford the NAMA prices for new apartments, so we'll, eh, swap them with them in return for them working.

Bound to work. What could possibly go wrong? Need Another Million Apartments?

edit: oh and there are many other ways.


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## darag (16 Oct 2009)

Duke of Marmalade said:


> This Business Plan looks exceedingly optimistic but *there is no other way*.


Repeating this over and over does not make it true.  There have been over 100 systemic banking crises in the world since the 70s and very few (none that I know of) attempted something on the scale of NAMA.  At the end of last year the yanks realised that buying toxic assets from struggling banks was a bad idea and they quickly switched to buying equity directly.  No one else in the world is attempting a NAMA and yet there are many banking crises happening in many different countries.  So it is absolutely and completely untrue to claim that there is no other way.


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## Duke of Marmalade (16 Oct 2009)

yoganmahew said:


> The point to bear in mind is that the maximum that can be gained from a loan is 100% of its value plus the interest paid on it.


 
Yes, I missed that on my first calc.  OTOH it is possible to get more from a borrower than the MV of their collateral security.  Though interestingly the business plan regards the MV of the properties as identical with the MV of the loans.  I guess when you owe a billion that is broadly true.

*There is no other way.*


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## z109 (16 Oct 2009)

Duke of Marmalade said:


> Yes, I missed that on my first calc.  OTOH it is possible to get more from a borrower than the MV of their collateral security.  Though interestingly the business plan regards the MV of the properties as identical with the MV of the loans.  I guess when you owe a billion that is broadly true.


Right, so do the numbers just based on the loans. Forget totally about the underlying. What is required to make the numbers that NAMA has given in its business plan work is that 2/3s of currently non-performing  (40% of total loans by value) become performing and pay back all they owe in addition to the 40% that are currently performing paying back all they owe. Both plus interest...

*There is AN other way.*


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## UFC (16 Oct 2009)

Duke of Marmalade said:


> *There is no other way.*


 
Do you mind me asking if you're a home owner, and if so, when you bought your home?

The reason I ask is I want to put your support of NAMA in context.

EDIT: To clarify, I've noticed most of the people supporting NAMA are new owners who obviously have a vested interest in it coming to fruition.


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## Duke of Marmalade (17 Oct 2009)

UFC said:


> Do you mind me asking if you're a home owner, and if so, when you bought your home?
> 
> The reason I ask is I want to put your support of NAMA in context.
> 
> EDIT: To clarify, I've noticed most of the people supporting NAMA are new owners who obviously have a vested interest in it coming to fruition.


Actually UFC, you're way off there, I'm old enuff to have bought and paid for my home a long time ago.

But you raise an interesting point. I think there is just a bit too much emphasis on NAMA being a commercial success in it own right. NAMA has been set up as an agent for recovery in the wider economy. It should use its position to keep property prices down at "reasonable" levels, even if that means a loss to itself. For falling house prices is a necessary factor in the economy adjusting to lower incomes and prices, especially with the depreciation of sterling.


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## TurboTim (17 Oct 2010)

Stiglitz spoke about the 700 billion US TARP program in the US in his interview with Mark Little. He complained that it was a crime ("massive robbery")that the US Goverments bought shares in US banks at prices well in excess of their market value.

He also described this as the Goverment giving a gift to the banks.

We have similar nonsense being said here. Last week the Ginger Whinger
was saying the Goverment paid 3 billion for shares in AIB that they could have bought for a fraction of the price on the stock exchange. 

These people clearly demonstrate they don't understand why a goverment 
would recapitalise a bank. _They are not trying to buy it on the cheap_.
They are trying to protect themselves and their taxpayers from much more costly consequences. 

_*Last week on Bloomberg TV they did a program that concluded that the *__*TARP program was a massive success generating a profit of 70 billion dollars for the US taxpayer.*_

*The US goverment has sold most of these shares at a huge profit.*

A group of old Swedes who know zilch about Finance, ziltch about Economics awarded Stiglitz the Nobel Prize. It's a meaningless gong.
Barak Obama has one. Having a Nobel Prize does not mean we are required
to assume that he knows what he is on about.


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