Tuesday, 11 August 2009

BaNAMA Republic

Enough has been written by others about governments’ bailout of bankers and speculators - the very people who caused the problem. Ironic that this is most pronounced in the Anglosphere, the alleged home of the bold capitalist risk-taker.

In Ireland’s case we have the National Asset Management Agency (NAMA), which proposes to buy all the banks’ ‘toxic assets’. And what will they pay for those assets (liabilities is the correct term) which are now worth about a quarter of their loan value? Well, the geniuses will pay, on the Irish taxpayers’ behalf, the value ‘that the assets could be expected to achieve in the medium term or when normal market conditions prevail’.
Now isn't that a lovely, clear, definitive statement of how much we’re being exposed to? NOT! Based on the legislation, everyone agrees that we have in effect no idea as to the extent of our ultimate exposure. At book values of €95 billion, we can see that a tiny country like Ireland is potentially facing a meltdown of Icelandic dimensions if it all goes wrong. Which it most likely will.

Just like in the US, it’s not as if the government has to do this. There is a very simple solution: let the shareholders and international bondholders - who invested unwisely because they were getting a great return on their investment – let them take the hit. After all, isn't that what the go-go risk-taking capitalist culture is all about?

Apparently not.

What intrigues me is why the government would incur such public odium, and inflict such devastation on its own people, rather than take this path. I don't believe it’s corruption in the commonly understood meaning of the term. Rather, again just like the US, the government has turned to the very people who walked us into the disaster to come up with the ‘solution’. Naturally this solution is one geared to support their interests, not the public’s. And the government is too incompetent and cowed to counter them. As I've pointed out on many an occasion, the sheer incompetence of Ireland’s politicians is nothing short of breathtaking.

And then we have the resident parasites circling like vultures, applying their own pressures as another feeding frenzy beckons. Lawyers will have a feild day (many field days) as every price offered by NAMA is appealed to every court in the land (all paid for by the taxpayer) while property valuers, consultants and middlemen of all sorts firmly insert all four feet in the trough.

The ostensible reason offered for taking the NAMA approach is that otherwise the international bondholders would take a dim view and our reputation would be damaged. First, our reputation is damaged quite enough as it is. And second, sentiment is an emotion unknown to international lenders. They’ll lend if they think they’ll get a good return and the risk is low. And as we’ve seen, there’s in effect no risk to lending to Irish banks. This being so the bondholders will continue to allow banks to throw money around like drunken sailors if they believe they’ll get their money back come what may.

But if we sold off the assets at current values, the resultant losses for the bondholders would encourage them to exercise caution in future before they pile into reckless gambling of the kind that brought Ireland down. Also we’d instantly cleanse our banking system (is that isn't an oxymoron) and use the billions slated to bail out the investors to instead recapitalise the banks.

Should be a no-brainer but it looks like we’re not going to do it. Ireland could be facing up to a Lost Generation.


openyoeyes said...

It may come as a surprise to you, but there are people right now waiting in the wings to buy these assets off these dumb asses who overpaid, albeit for pennies on the dollar.

Doesn't it make more sense to have these prudent and prescient individuals running things instead of the status quo of incompetent and greedy morons running things at present?

Anybody who blames the "free market" for this travesty, has to wonder what the free market would do to all these sniveling, fearless capitalist types hiding behind the governments skirts, while the true capitalist sharpen their knives for the kill.

I agree with your take on the problem that the government seeks out the expertise of self interested experts in a time of crises. This very point, is the reason government should not have a role in the economy, it is utterly incapable and unable to responsibly allocate scant resources objectively without political considerations that over rule practical ones.

These same distortions take place in the social atmosphere as well, when the government intercedes into the affairs everyday people who function on a very complex structure of social mores and rules.

Anonymous said...

Very much off topic:

Why place the link to the picture inside the word 'liabilities'?

Anonymous said...

openyoeyes: good point about government impact. But.... what's the alternative? No government? That's anothr name for anarchy

SAVANT said...

I don't see any embedded link in the image???

Anonymous said...

Hopefully yesterday's Supreme Court ruling will seriously undermine NAMA

kulak said...

The ostensible reason offered for taking the NAMA approach is that otherwise the international bondholders would take a dim view and our reputation would be damaged.

Like it's good to be in debt. Like a reputation as a conscientiously paying sucker is a good thing.

No, it's good for the lenders if you have a good reputation for taking on and paying debt. Your credit rating also takes a ding if you don't borrow anything.

Even if it was a good thing, if everybody has a bad reputation... what power would the bondholders have left?

The old attitude is the correct one. Debt is a vice, and lenders are its peddlers.

Neither a borrower nor a lender be.

Anonymous said...

kulak - your spot on. We owe these bastards nothing. They took the risk and it didnt work out. Fuck them. As you say - they're purveyors of vice.

Cap'n P.

Anonymous said...

What amazes me is the insouciance (is that the word?) with which most people in ireland view these developments. They really think that a little bit of time and, shure it'll all be fine. As you say Savant, we could be the Lost Generation.

Pauline Conversion

openyoeyes said...

Anon 1209

How about a very limited government confined to adjudicating disagreements between parties, collective use of force for people that would violate your rights?

No mention of bank bailouts in my theory of government. Merely prevent people from ripping their neighbors throats out by having the biggest, baddest stick out there to protect people from harm to their person or property. Also, allowing people to peaceably co-exist or refrain from association as the individual wishes. In short, securing your freedom.

Anonymous said...

openyoeys - you're an anarchist!

Tim Johnston said...

It's called Libertarianism. It's the third largest party in the United States! check out www.cato.org/ whose excellent newsletter appears in my inbox every week.