Joseph Stiglitz on Prime Time

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)
 
 
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.
 
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.
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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.
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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.
 
 
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!
 
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.
 
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.
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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.
 
canicemcavoy said:
Seriously? (8% property growth)

Does anyone believe this will happen?
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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.
 
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.
 
Duke of Marmalade said:
This Business Plan looks exceedingly optimistic but there is no other way.
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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.
 
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.
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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.
 
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.
 
Duke of Marmalade said:
There is no other way.
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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.
 
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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