The Fine Gael alternative to NAMA

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.
 

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?
 
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
 
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.
 
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.
 
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.
 
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 -
 

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.
 
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".
 
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
Click to expand...

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?
 
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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