# 20 Economists call for nationalisation of the banks



## Brendan Burgess (17 Apr 2009)

Although I am a shareholder in AIB, as a citizen and tax payer, I agree that AIB and Bank of Ireland must be nationalised. 

NAMA without nationalistion, means that the taxpayer is taking all the risk and gets none of the upside. 

This point is very well made by 20 economists in today's [broken link removed]

It protects the taxpayer
It's a more long lasting solution
It is more transparent
It will allow the Government replace the management


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## Padraigb (17 Apr 2009)

I agree. [It's easy for me to agree because I do not have shares in any bank.]

The big problem is that there seems to be no clarity on the terms on which the proposed NAMA might purchase the debts. It looks possible to me (tending towards probable) that they might be acquired at far more than their realizable value. 

If NAMA results in a loss and, at the end of the process, bank shares have any value, then I will feel that the taxpayer will effectively have subsidised shareholders. That's what I currently think the most likely scenario.


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## tiger (17 Apr 2009)

I also agree
[I'm neither a shareholder nor an economist!]
NAMA will be a disaster for the tax payer if we overpay for the assets.  If we own the banks we're paying, then it won't be such an issue.
I think current shareholders should only get €0.01 per share as effectively the banks are bankrupt, and only have some value due to the govt guarantee & NAMA.


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## Lightning (17 Apr 2009)

Great article in The Irish Times. 

I have been convinced for some time that the most likely "end game" is nationalisation for AIB and BOI. 

I am in favour of nationalisation provided it is a short term and with a clear exit route for the government. Also, provided it is not a "one size fits all solution" -meaning other options are considered for PTSB, INBS and EBS.


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## Brendan Burgess (17 Apr 2009)

Yes, there is need only to nationalise AIB and Bank of Ireland.

Anglo and Irish Nationwide should just be wound down.

The EBS and Permanent TSB are solvent and can continue to trade with the government guarantee. 



Brendan


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## Brendan Burgess (17 Apr 2009)

It is absolutely impossible to value the assets of AIB or Bank of Ireland. 

We will not know how much the loans are worth for at least 5 to 10 years. So it's impossible to be transparent or to put a value on these loans.

Brendan


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## ontour (18 Apr 2009)

There is a significant difference between the government owning the majority of the banks and the banks being nationalised.

If they are nationalised, the current shareholders would expect fair value. The determination if that would inevitably be similar to the determination of the value of the assets by NAMA. I have a horrible vision of a tribunal-esque investigation in to the amount given to shareholders for their bank share.

Nationalising the banks and controlling the management decisions changes the focus from commercial to political. Will a nationalised bank call in a loan from a elderly or unemployed person? Political pressures will pollute the commercial operation and will negatively impact our banking operations. This will impact both individuals and businesses as the prudent people will pay even more for the sins of the financial gamblers as the banks/government will 'take care' of the little person. Irelands image will be further eroded as a country that takes assets from private companies rather than a government that supports private enterprise.

There is an assumption that you need to nationalise the bank to get good management. The opposite is true as good bank management will not want to run an organisation where their decision making is subject to the whim of political pressures and elections. An arms length approach by government emphasising the seperation between state and banks is the right way. The operational decisions of bank managers could not be impacted by a trip to your TDs constituency office.

The article is even less useful for planning than the average RTE weather forecast:



> Once cleaned up, recapitalised, reorganised with new managerial structures, and potentially rebranded, we recommend that the banks be returned to private ownership.


 
'cleaned up' is quite vague, we know what the 'recapitalised' task is, what do we know about the problems with the old or need for new management structures? This is a platitude with no details. There is no timing or method by which banks would be returned to private ownership. We would just defer the argument that the state/taxpayers are getting screwed from now until the time they would sell or float it. 

The article is written by civil servants (academics paid by the state) who are blind to the fact that private sector operations are generally more efficient and effective than their public sector equivalent. Get me an article by 20 people that we would like to run our banks and get them to say that nationalisation is the way to go and then I might be convinced.


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## Brendan Burgess (18 Apr 2009)

There are disadvantages to nationalisation, but I think that the advantages far outweigh them. I also think that the disadvantages can be minimised. Here are the disadvantages as I see them: 

*Ideological 
*I would guess that, in normal times, 90% of us would be opposed to nationalisation of commercial organisations. I certainly would be. 

But these are not normal times. The taxpayer has already taken on all the liabilities of these banks.

*Nationalisation  would send a bad signal to international investors
*I think that this exceptional nationalisation would not send a bad signal. It is not that we are seizing the assets of a profitable business. 
*There will be political interference in lending decisions 
*As a shareholder in AIB, the best strategy for the bank is to deleverage as much as possible. Stop issuing loans. Don't agree to rescheduling. Batten down the hatches.  But is making the economy even worse. It is in the national interest that banks start lending to businesses again. 

There does need to be strategic political influence in lending policy. 

There would have to be safeguards to stop interference in particular decisions. I don't think that they would be perfect, but anyone who has been refused a loan recently will have been told that it was refused by someone in head office. Very little pressure can be brought to bear on the local branch manager. 

*The government would not be able to run banks 
*The banks would still be run by an executive management and by  independent directors. Sure there would be civil service involvement and monitoring. But the culture would continue to be private sector. 

*The taxpayer would take on all the liabilities of the banks
*We have taken them on already. 

The one area I would be very concerned about would be the pension scheme deficits. If AIB can't afford to pay its pensions, then it should not do so, whether it is owned by the shareholders or the taxpayers.

*Bank employees and trade unions would have huge political influence
*This would be a big worry. It is very difficult for public sector groups like the ESB or Dublin Bus to implement reform. I think that the public attitude is changing and such reform becomes necessary.

*It would be difficult to agree a price for the shares.*
Not really. The stockmarket today values AIB at €750 million and Bank of Ireland at €660 million. Add a 20% premium to that and the government could buy the shares for less than €2 billion which is tiny in the overall scheme of things. 

The potential mispricing of the transfer of bad loans to NAMA is far more significant. 

*Bacon's argument that the market is a good monitor of the banks
*He has to be joking. I was a great believer in the Efficient Markets Hypothesis. But I have lost 95% of the value of my investment in AIB. 

The market has done nothing.


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## Brendan Burgess (18 Apr 2009)

Some more arguments against nationalisation

*These 20 economists have no credibilty as they remained silent during the bubble

*Most academics remain out of public debate. There was no one particular incident to provoke them to action. This potentially disastrous move prompts action. 

They have expertise. They have actually studied banking and public finance in other countries. They have a wealth of experience and their arguments must be considered.


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## Brendan Burgess (18 Apr 2009)

Let the National Pension Reserve Fund buy the banks instead of nationalising them. 

This would have the same impact as nationalisation in that the taxpayer would gain from any mispricing of assets. 

But it would put the banks at one remove from excessive political influence.


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## UptheDeise (18 Apr 2009)

Here's a solution to our banking problem.


Let the banks who have failed, ahhh fail.

Let them go to the wall.

Let entrepreneurs establish new banks form the ground up afresh.

That's the only solution. Nationalising them and recapitalising is wrong.


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## Brendan Burgess (18 Apr 2009)

That might well be a solution if only one bank was in trouble.

It might even have been a solution in the middle of last year.

But, like it or not, we have guaranteed the liabilities of the banks and we have to adhere to that guarantee.

We have to go forward from here. Not from where we would like to be.

Brendan


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## darag (18 Apr 2009)

There is an obvious conflict in what the government is trying to achieve here.

If NAMA overpays for the distressed loans then the tax-payer loses out (as they will be liable for the debt on NAMA's balance sheet).

If NAMA underpays for the distressed loans, then the capital ratios of the banks are eroded and the tax payer loses out as the government will have to inject more capital.

Since the government is responsible for all the banking liabilities in any case, transferring bad loans to NAMA is little more than like an expensive accounting exercise.  As such, the divisive, complex and politically fraught process of valuing these distressed "assets" looks is a complete distraction and waste of effort to me.

The one advantage of the "underpay" option is that the shareholders take the hit before the taxpayer.  This is not insignificant.  Last years guarantee already let the subordinated debt holders off the hook, it would be highly inept for the government to let the shareholders off too.  However this can be achieved far more simply by nationalisation which is probably only a formality at this stage anyway.  I don't have a huge issue in public ownership in the current circumstances but would have an issue if in addition to taking ownership, the government started meddling with the executive functions of the banks (for example you could imagine political pressure to force banks to "allow" fixed rate mortgage holders to switch to variable).

In fact most governments are pulling in two directions when it comes to their handling of their banking industries; on the one hand, the want banks to provide more credit to help their national economy while on the other they want them to improve their capital ratios in order to stabalise the banking system.  Unfortunately these goals are mutually exclusive so trying to encourage both is futile.


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## Bank Manager (18 Apr 2009)

Brendan said:


> Some more arguments against nationalisation
> 
> *These 20 economists have no credibilty as they remained silent during the bubble*
> 
> ...


 

Brendan,

Using this argument then suggests that the Economists (e.g. Alan Aherne)that are currently advising the Government have no expertise, experience or that their arguments shouldn't be considered.  Interesting ....

Regards,

BM


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## Conan (18 Apr 2009)

20 economists recommending nationalisation is the best argument I have heard so far for going with NAMA.

Definition of an economist: Someone who knows 100 ways to make love, but does not know any women.


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## Brendan Burgess (18 Apr 2009)

> Since the government is responsible for all the banking liabilities in any case, transferring bad loans to NAMA is little more than like an expensive accounting exercise



I don't agree. I think that NAMA should be set up and the bad loans should be transferred out. What will be left will be two good banks. These can be recapitalised and then refloated. 

I don't think you can have NAMA without nationalisation. And if the banks are nationalised, then NAMA should go ahead anyway.

Better than NAMA, transfer the bad loans to Anglo. 

Brendan


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## z109 (18 Apr 2009)

I think NAMA is the worst possible idea apart from nationalisation, or rather, the structure of NAMA is the problem.

Look at the way the government is going to fund both NAMA and the resultant recapitalisation of the banks - it is going to issue treasuries directly to the banks both through NAMA and in recapitalisation. That is, the government is going to issue IOUs without going to the bond markets. In effect, the government is doing quantative easing. It is increasing the supply of credit in the economy by swapping bad assets for good (sound familiar to any Fed watchers?). Given that Mr. Lenihan has already indicated that the ECB/EU have approved the scheme, this is a significant point, IMO.

Now consider the situation where the banks are nationalised. Can the government issue treasuries to itself? I doubt very much that would be approved.

Why not just nationalise the banks without using the treasury swap? The banks are currently insolvent by any form of mark-to-market accounting. They would be unable to borrow and would probably have great difficulty rolling over the bonds they have due this year. Rather than a 'what if' liability of the government guarantee, we would have a 'definite' liability. There could be little more funding for the banks privately, so it would all have to come directly from the government.

Given the scale of the numbers required, the government would be looking to sell debt at a debt:GDP ratio greater than Italy's without the use of magic pixie money. It would require a huge amount of government bonds to be put on the market and the price to be paid would be huge.

Add to this the fact that some 76% of the government bond issue this year has been bought by domestic financial institutions. With those institutions privatised, who is going to buy Irish debt at a reasonable price? The nationalised banks? I don't think so.

So, however, unpalatable it is, the banks have to remain private.

What I would like to see, though, is a move to convert some of the equity and debt holders of the banks into equity holders of NAMA and have it a 60/40 state/private operation. This, I think, would encourage some transparency, would certainly encourage the recovery of the maximum value of the loans possible, would reduce the cost (in that some of the existing debt of the banks is transferred to NAMA), and might in the long run reduce the losses to the taxpayer.


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## Bank Manager (18 Apr 2009)

Yoganmahew,

Agree with your general thrust....

I believe NAMA are buying the wrong 'asset' (the loan) - I believe they should be buying the land and/or property - rather than re-hash what I said back in February on a different thread, here's my view for what worth ...

Regards,

BM

http://www.askaboutmoney.com/showthread.php?t=104529


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## z109 (18 Apr 2009)

It's an interesting idea BM, but it has one flaw, I think. As far as I understand all residential and a fair amount of commercial is likely to be swapped (Citigroup analysis courtesy of Dreaded_Estate: http://ftalphaville.ft.com/lib/data/filecache/attachment/C/i/Citi-on-Irish-banks.pdf ). If the underlying assets were bought, at whatever discount, the remaining similar assets (amounting to some 15% of AIB's remaining loan book according to the Citi analysis) would have to be marked to the price obtained from selling to NAMA.

This leaves the government in the same (or a worse) position - overpay for the assets so as not to cause more major writedowns for the rest of the banks' loan books or pay a realistic price and increase the recapitalisation cost (Cost of NAMA + cost of NAMA purchase recapitalisation (crystallised losses on the loans for the banks) + cost of recapitalisation for marking the rest of their property book to the market value of the assets). It is in the interest of the banks that the underlying price of the assets remain a mystery. That, I believe, is what the NAMA is trying to achieve.

However, your suggestion does have the following merits:
- clean up the loan books of the banks possibly making them attractive for new capital
- greater recapitalisation money = greater possibility of shareholder upside in the long-run either through paying back the loans or in equity terms, IMO


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## Mommah (18 Apr 2009)

yoganmahew said:


> It is in the interest of the banks that the underlying price of the assets remain a mystery.


 
First of all I need to said that alot of what has been said is over my head.
But I would like to comment on the theme that the banks are being somewhat devious or underhand in valuing their toxic debts.

1. I'm guessing they do not know which debts are truly toxic until they have the benefit of hindsight. There are dodgy looking debts but probably 50% or more of these will actually pull through, eventually??

2. How can you value things like commercial or even residential property in the current climate?
As far as I can see the only way to value it is to sell it.
Again hindsight is a requirement.

Any prospective valuation is subjective and flawed and no political body will have the cahunas (?sp) to make such valuations IMHO

Is the taxpayer not vunerable in all these scenarios any which way?
Until this renewed talk of nationalisation the banking situation seemed to be improving?
The news coming out of the US banks seems to be positive.


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## z109 (18 Apr 2009)

The news coming out of the US banks is smoke and mirrors - most of the gains are one-time:
- Goldman Sachs lost a month (December) by adjusting their quarter end to March - they lost 1.3 bn in December, that would have wiped out most of their profit for this quarter, in addition, they gained a large number of billions from AIG unwinding CDS contracts in their favour.
- Citigroup gained 2.6 bn because the price of their debt has fallen because it looks like they will go bust.
- JP Morgan similarly gained on AIG CDS unwinds.

1. They can pretty much guess - development land with interest roll-ups, no repayment, no income flow, no likelihood of income flow, similar land changing hands at x% below the price. Commercial property in places with vast over-supply or no demand.
2. Houses that are not selling at 20% discount, 30% discount... so what is the rental value of an equivalent house? Similarly with commercial property, what is the rental value of an equivalent property? (i.e. what can the properties bear to pay back). (IMO, the current values would be at the high-end of future values, I think the days of the upward-only rent review are numbered!).


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## ontour (19 Apr 2009)

Brendan said:


> Let the National Pension Reserve Fund buy the banks instead of nationalising them.
> 
> This would have the same impact as nationalisation in that the taxpayer would gain from any mispricing of assets.
> 
> But it would put the banks at one remove from excessive political influence.


 
Like the plan, but if instead of buying the bank, the National Pension Reserve invest, then they will probably own 95% of the bank.  The current shareholders will still have shares and all going well, the price may rebound somewhat in the future.  As openly traded shares there will be no big bang return to private ownership from state ownership as the National Pension Reserve could sell a small quantity of share over a long period of time.  

There will be an arms length relationship between banks and states.  Breaking of mortgage fixed rates will not become a local election issue which it will if we nationalise the banks.


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## Brendan Burgess (19 Apr 2009)

Hi Yogan

I find it very difficult to follow your argument. Can we take it one step and one bank at a time so that I might be able to follow it? 

Say that AIB has €20 billion in property development loans. And let's say that €12 billion of this is toxic - in other words it is worth less than €12billion, but we don't know how much.

The current plan is that AIB will sell the €20 billion to NAMA. Let's say that is sold for €17 billion. 

NAMA gets the loans. 
AIB gets €17 billion in government bonds. 

AIB is now much easier to value as the uncertainty is reduced. ( Of course, the bonds could well become toxic, if Ireland's debt is further downgraded). 

AIB's reserve ratios have now been reduced or wiped out by realizing the losses. They need further capital so the government has to put in more capital. 

What does AIB do with the bonds? It will collect interest. It probably can't sell them as they would flood the market. 

What does the government do with the loans? It collects interest and repayments and over time forces the sale of property to speed up the repayments. It then redeems the bonds. 

Brendan


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## shanegl (19 Apr 2009)

I would add to the above that AIB would probably be availing of the ECB repo facility with these Irish bonds.


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## Brendan Burgess (19 Apr 2009)

Hi Shane

Good point. Presumably this means that the ECB will lend AIB money based on the bonds as security?


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## darag (19 Apr 2009)

Brendan said:


> I don't agree. I think that NAMA should be set up and the bad loans should be transferred out. What will be left will be two good banks. These can be recapitalised and then refloated.
> 
> I don't think you can have NAMA without nationalisation. And if the banks are nationalised, then NAMA should go ahead anyway.
> 
> ...


I agree you cannot have NAMA without nationalisation; but I disagree that NAMA helps at all.  Banks don't become "good" because they've sold off some dodgy assets from their balance sheets; in fact it's likely the banks will become insolvent (or close to it) - they're "good" when they have a strong tier 1 capital ratio.  The latter has to be addressed anyway by capital injection so the NAMA thing is an expensive and complex distraction.

The NAMA idea encourages people to miss the wood from the trees.  NAMA is effectively another bank, which despite all the inevitable effort and heat/noise surrounding the valuation of the transferred assets will have NO effect on the consolidated position of Irish banking as far as tax payers' liability is concerned.

The only thing that matters for the taxpayers at this stage is that every bit of value is wrung out of these assets (i.e. the bad loans); if NAMA was being sold as a bunch of hardened debt-collectors or something I might buy it.  Otherwise I fear a government controlled "bad bank" will be much worse than the existing bank at sweating these loans.

The government is going to have to stump up a huge wad of money anyway; to me, the simplest action would be simply to inject the capital directly (taking over the equity) and leave all the messyness of loan revaluation and debt collection to the existing banks.

The only other action the government should be actively pursuing is to merge some of the banks - not as a balance sheet exercise but to force the rationalisation of the sector leading to lower costs and raise profits to allow the condition of the banks' balance sheets to slowly be improved through retained profits.  There is simply no need for 5/6 "native" retail banks in addition to the "foreign" banks; all the duplicated back office costs, branches and management must be a significant drag on the banking sector as a whole.


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## z109 (19 Apr 2009)

Brendan said:


> Hi Yogan
> 
> I find it very difficult to follow your argument. Can we take it one step and one bank at a time so that I might be able to follow it?
> 
> ...


Sorry Brendan for being unclear, I left out the bit that shanegl has mentioned - ECB repo.

The value of bank assets is linked to their ability to raise cash for further lending which can then be used to create 'good' assets, that is loans that have some chance of being paid back. This is how banks work - they take existing loans and borrow against them. At the moment, the ECB is the only lender that is likely to lend to Irish banks (other than the state). To avail of repo, the loans must be packaged into a securitisation (I believe).

The C&D loans aren't worth tuppence in this scenario - the chance of them getting a rating level high enough, if securitised, to be eligible for ECB repo is nil. Add to this, even if they could by some magic process be packaged, they would take a haircut of some 20% on their repo value. Sovereign debt, on the other hand, has a much lower repo value, so even at face value, the government treasuries are 'worth' more to the banks than the C&D loans; they are a much higher powered asset. Indeed, aside from the ECB, they can be pledged as collateral in the commercial markets (should rates be lower there).

So there are a couple of effects:
- good assets for bad
- higher powered assets

The Quantative easing comes into play in that the government issued securities are swapped for the C&D loans without going through the bond markets, that is, assets are being created without an equivalent withdrawal of cash from elsewhere in the system.

Even should Ireland's debt be downgraded further, it is unlikely to be downgraded to the level that the C&D loans are. If, as is widely suspected, many are not generating any income, they are technically in default. That is why, I believe, it is valid to describe them as 'toxic' rather than 'misunderstood'!

BTW, I think your valuation is optimistic - a 15% haircut would entail a huge loss for the state. I think the end result will be mostly nationalised banks, a similar situation to RBS in the UK.


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## Complainer (19 Apr 2009)

ontour said:


> T
> Nationalising the banks and controlling the management decisions changes the focus from commercial to political. Will a nationalised bank call in a loan from a elderly or unemployed person? Political pressures will pollute the commercial operation and will negatively impact our banking operations. This will impact both individuals and businesses as the prudent people will pay even more for the sins of the financial gamblers as the banks/government will 'take care' of the little person. Irelands image will be further eroded as a country that takes assets from private companies rather than a government that supports private enterprise.


There was a banking academic on Vinnie Browne last week quoting the research that shows that banks are rarely effective in collecting their own bad debts, as they have an emotional involvement in those debts having granted the original loans.


ontour said:


> There is an assumption that you need to nationalise the bank to get good management. The opposite is true as good bank management will not want to run an organisation where their decision making is subject to the whim of political pressures and elections. An arms length approach by government emphasising the seperation between state and banks is the right way. The operational decisions of bank managers could not be impacted by a trip to your TDs constituency office.


You are overestimating the impact of local TDs on any Govt operation. While the TDs may like to give the impression of huge influence on state agencies, all state agencies have independent boards are are not going to be significantly influenced by representations by a TD.

I'd be more worried about influence and cronyism at board level - the track record of the current Govt in appointing people to boards has been poor.


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## ontour (19 Apr 2009)

Complainer said:


> ......banks are rarely effective in collecting their own bad debts, as they have an emotional involvement in those debts having granted the original loans.


 
The bad debt collection policies of banks varies.  IMHO, they are not emotionally involved in the the loans they granted, their priority is to protect their image as part of the community so they sell on the debt to let a less image aware organisation collect the debt in any way possible.



Complainer said:


> You are overestimating the impact of local TDs on any Govt operation. While the TDs may like to give the impression of huge influence on state agencies, all state agencies have independent boards are are not going to be significantly influenced by representations by a TD.


 
I didn't say that the TDs could deliver on the banking decisions but they certainly could try as they do with medical cards.


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## Duke of Marmalade (20 Apr 2009)

There are some basic contradictions in the learned professors' epistle.

They speak of the dangers of understating the discount as having enormous implications for the taxpayers. But as others have pointed out these bad debts are going to belong to the taxpayer one way or another.

It is now accepted that the process will involve the State owning maybe 80% of the banks anyway rather as in the UK. 

The learned ones suggest that the current proposal risks a situation where the taxpayer is nursing €30Bn of bad debts whilst share prices soar in the revitalised banks. But the taxpayer will have been the major beneficiary of this resurgence in values, will they begrudge sharing 20% of this with other shareholders?

The UK has not nationalised its main banks, rather they have gone for majority ownership, and theirs is a socialist government.  Moreover they would probably have the skill base to manage the banking sector by public servants. If nationalisation is a last resort for the UK it should be an even laster for Ireland.


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## Duke of Marmalade (20 Apr 2009)

Brendan said:


> The one area I would be very concerned about would be the pension scheme deficits. If AIB can't afford to pay its pensions, then it should not do so, whether it is owned by the shareholders or the taxpayers.


Thank goodness we still have a democratic legal system, _Boss_. 

If it was that easy to walk away from a pension fund deficit predators would be doing it all the time. To protect against this we have a law which states that pensioners get priority in a winding up of a pension scheme. 

One presumes that the nationalisers are suggesting that the confiscated banks would be run as going concerns rater than put into liquidation. To save on pensions in the going concern would involve winding up existing pension schemes. But since the pensioners will be largely protected this saving will prove illusory as, in setting up a new scheme for existing staff, they will have to fund similar levels of pensions to which they are currently entitled.


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## Padraigb (20 Apr 2009)

Duke of Marmalade said:


> There are some basic contradictions in the learned professors' epistle.



They are not all professors (nor, indeed, economists).



> They speak of the dangers of understating the discount as having enormous implications for the taxpayers. But as others have pointed out these bad debts are going to belong to the taxpayer one way or another.
> 
> It is now accepted that the process will involve the State owning maybe 80% of the banks anyway rather as in the UK.



Accepted by whom? Where did that figure come from? 

There is another possible scenario: NAMA takes over loans at a relatively high valuation (I have seen 85% of book value mentioned). That measure, on top of the preference-share recapitalisation already implemented, might be sufficient to ease the banks' problems so that they return to ordinary good health.



> The learned ones suggest that the current proposal risks a situation where the taxpayer is nursing €30Bn of bad debts whilst share prices soar in the revitalised banks. But the taxpayer will have been the major beneficiary of this resurgence in values, will they begrudge sharing 20% of this with other shareholders?


 
I still don't see where the 80% comes from. What arrangement is there to assure it? And yes, if bank shares regained value because we as taxpayers relieved the banks of their debts, I would be very angry if a portion of that gain went to anybody other than the exchequer. On that, you can classify me as a begrudger.


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## Duke of Marmalade (20 Apr 2009)

Padraigb said:


> Accepted by whom? Where did that figure come from?
> 
> And yes, if bank shares regained value because we as taxpayers relieved the banks of their debts, I would be very angry if a portion of that gain went to anybody other than the exchequer. On that, you can classify me as a begrudger.


I said "maybe 80%". It depends of course on the discount. Citigroup gave a range of scenarios and 80% seemed about midway. Anyway the political pressure will not be happy with much less.

I see your point, and I might even share it. But I am pointing out that the learned ones by greatly exaggerating the relative taxpayer risks of NAMA v Confiscation have undermined their credibility.

I'm a humble paddy and my instinct is that we ain't goin' to manage this better than the UK. If confiscation is wrong for the UK it is even wronger for Ireland.


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## z109 (20 Apr 2009)

Padraigb said:


> There is another possible scenario: NAMA takes over loans at a relatively high valuation (I have seen 85% of book value mentioned).


That would be the measure estimated by one of our sterling stockbroking companies?

You seem to be saying we should overpay for the assets without getting anything in return?



> That measure, on top of the preference-share recapitalisation already implemented, might be sufficient to ease the banks' problems so that they return to ordinary good health.


In your dreams, buddy! (joke) But seriously, that would mean that every international investor and AIB are wrong (as in AIB looking to raise an additional 1.5 bn through asset sales this year). 

Note also that recapitalisation through the acquisition of ordinary shares was specifically set out in the budget and in the Bacon Plan for NAMA. This suggests it will have to happen.

Note also that the suggested amount that NAMA will have available is 50 bn to buy 80-90 billion in assets. This also suggest a ceiling on the price (of about 45 bn to leave NAMA with working capital) with the only remaining argument about whether it is 80 or 90 bn in assets.


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## North Star (20 Apr 2009)

Personally I find the rush to extole the merits of nationalising the banks worrying. Be careful what you wish for is a phrase that comes to mind. 
If the primary objective is to protect the system and stimulate/support sustainable lending to businesses and individuals, then the focus should be on the probability of that being achieved. Either way the taxpayer is running risk, either through overpaying for the assets or more dangerously through much higher social welfare as unemployment rises and stays at elevated levels for a long period. Thats why the banks are of systemic importance. A couple of thoughts
1) there have been several examples of situations when banks/banking systems have been technically insolvent, e.g The savings and loans crisis in the U.S in the 80s. What the banks require is time to trade their way out of the current position. Clearly they can not do this on their own and need external support i.e the Govt. on a temporary basis.
2) We as a country rely heavily on external investors to fund  our Govt, our banks and our companies. Laterly we have very high reliance on ECB (as do many other countries including Germany). If the banks were nationalised, the damage to our external perception would be huge and in my opinion would have hugely damaging impact on the Govts. ability to fund its self and all the banks liabilities that it would have taken on. This were it to happen will cost the tax payer both in much higher external debt and in much more expensive funding costs. We must maintain international confidence in our ability to manage our debt.
3) There is little evidence that a nationalised bank can or wquld be capable of lending  on the scale required to sustain employment. Has Anglo Irish been knocking on doors offering value loans?? obviously not, their immediate priority is to fund themselves
4) Current bank management can and have been replaced, with hopefully more to come, the executives should take personal responsibility for failing  their fiduciary duties.
5) The Dept of Finance does not have the resources to effectively run our banking system
6) I find it difficult to imagine a state bank not having to deal with political influence/interference. 
7) The Nama legislation wont be passed until near the end of the year, in the meantime all options such as a bank assurance scheme should still be on the table.
8) If Nama pricing requires Capital writedowns that force the banks to seek more Capital, the cost ultimately will I believe be far higher to the taxpayer  than in technically overpaying for the assets.
9) We need to be pragmatic and take the steps which offer the highest likelyhood of having a normal/robust and  privately held banking system. Once we are there, then we can demand whatever bank levy/dividend the Govt deems to be appropriate.
As politicians, they wont loose any votes chasing the banks once they start making profits again


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## smiley (20 Apr 2009)

northstar..excellent post.


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## redstar (21 Apr 2009)

> 20 Economists call for nationalisation of the banks



Funny .... I remember seeing 'Sinn Fein Workers Party' election posters in the early 80's shouting "Nationalise the Banks !". I laughed to myself, thats crazy talk from fringe loonies.
Amazing how fringe ideas become mainstream in a crisis


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## Bob_tg (21 Apr 2009)

Brendan said:


> They have expertise. They have actually studied banking and public finance in other countries. They have a wealth of experience and their arguments must be considered.


 
Prof. Brian Lucey, who is one of the lead authors of our article in question, is the same guy who forecast the boom in property prices would continue until 2010 !!  (See [broken link removed]).  

This puts a question mark over Prof. Lucey's credibility in predictive analysis.

Just because someone studies something regularly does not make them necessarily any more astute at forecasting outcomes.  His current argument should be considered in terms of his track record - not his title or publications history.


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## Firefly (21 Apr 2009)

From said artcile....

Lucey’s findings contradict the view of the European Central Bank (ECB), which last week warned that the houses in Ireland were overvalued.


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## Duke of Marmalade (21 Apr 2009)

Fantastic link, Bob. What a farce? And in case anyone says the good doctor could not have foreseen the credit crunch, that 2006 link shows that our genius was at odds with the ECB who were saying houses were overpriced.

And what about the gem that Lucey was commissioned by a Mortgage and Finance house to produce his grossly optimistic report.

Credibility rating ZERO.

SFAIK Bacon's earlier reports were pretty spot on. These guys have a nerve in trying to intellectually bully Bacon and the rest of us.


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## padraig38 (22 Apr 2009)

I have a fundamental problem with the idea that two opposing sides have emerged in relation to whether the nationalisation of the banks should be immediate or otherwise, each side appears to be entirely convinced of it's own position, perhaps a more pragmatic third way is possible 
Who ever said that Economics was a science, exact or not?


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## smiley (22 Apr 2009)

bob tg...great link. i was thinking of doing a trawl to see what all these academics were saying about the irish boom over the last 5 years or so...

i bet the vast majority of them got it wrong!


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