Nama will be a financial millstone for future generations and must be stopped, Labour Party leader Eamon Gilmore said this afternoon ahead of a Dáil debate on the proposal.

He said the debate on the Nama Bill was "the most important that we have ever had in the 90-year history of the Dáil."

"It is essential that we sort out the banks, and get credit flowing again so that we can save jobs under threat and get people back to work again," he said.

"But it is also essential that we get it right, because once this legislation is passed there will be no going back. A new government will not be able to reverse course, once the process of acquiring the dodgy loans begins."

"And the government approach is wrong and that is why the Nama Bill must be stopped," he added.

Mr Gilmore said there was a real danger that the Government would end up paying grossly inflated prices for properties, placing a financial millstone around not just the current generation of taxpayers, but possible the next generation also.

"The same Fianna Fáil that wasted millions and millions of taxpayers' moneys on PPARs, electronic voting, the Fás scandal and endless junkets and perks for Ministers, now wants to put billions of taxpayers' money at risk," he said.

He said there was growing opposition to Nama and increasing support for the alternative of the temporary nationalisation of the main banks.

"It is ironic that while Minister Lenihan refuses to consider temporary nationalisation and insists on going the Nama road, he acknowledges that Nama may not work and that the government may have to take the banks into public ownership eventually."

He said it was shocking that the Green Party "has been prepared to back up the Fianna Fáil plan to bail out the bankers and developers."

"It is now time for the Green Party to decide who they stand with. Do they stand with Fianna Fáil and their developer friends or do they stand with the people of Ireland?" he said.

Sinn Féin's Caoimhghín Ó Caoláin said his party "would do all in its power to stop the passage of the Nama legislation through the Dáil."

So the banks are taking 2/3 of the loss and the government 1/3 of it. What's not to like?

I mean, if the banks wanted to sell the stuff at market value they wouldn't need the government as a buyer, would they?

En un viejo país ineficiente, algo así como España entre dos guerras civiles, poseer una casa y poca hacienda y memoria ninguna. -- Gil de Biedma

I thought maybe the harp might be replaced by a harmonica on them too.

The Hun is always either at your throat or at your feet. Winston Churchill

 Nama to pay €54bn for bank loans of €77bn in rescue plan - The Irish Times - Thu, Sep 17, 2009

The Government also revealed details of its mechanism to spread the risk of part of the overpayment from the taxpayer to the banks and building societies. The lenders will only receive €2.7 billion of the €54 billion payment for the loans if the agency makes a profit over time.

Irish bank shares have risen sharply this morning following yesterday's disclosure of how much the National Asset Management Agency (Nama) will pay for property-related loans.

AIB rose were 23 per cent higher this morning at €3.26 at 8.45 am. The bank said yesterday it would seek to raise about €2 billion as it transfers loans to Nama.

Bank of Ireland shares rose 10 per cent, to €3.16 as the Dublin market overall rose 3 per cent.

"The sentiment is going to be one of relief in the short term and a perception that State involvement is being kept to a minimum, which is welcome and is going to be supportive into the likely capital issues in the months ahead from the banks," Goodbody analyst Eamonn Hughes wrote in a note this morning.

"However, our models show that valuations are starting to look stretched when the market comes around to recognising the substantial capital requirements of the Irish banks over the medium term."

Minister for Finance Brian Lenihan this morning defended the risk-sharing mechanism provided in the Nama Bill in which 5 per cent, or €2.7 billion, of the €54 billion to be paid for the loans will be in the form of subordinated bonds. These will only be paid if Nama makes a profit.

Mr Lenihan said the more risk that was put into the banking system "the less they will be able to lend".

He said the figure of €54 billion was an estimate, not a finalised figure. "The figure is subject to detailed legal valuation of each loan." 

Mr Lenihan said the bank was paying €7 billion more than the estimated current market value because the property market was distressed and "we have to provide some allowance for long-term value," he told RTÉ's Morning Ireland. 

He said the effect of the risk formula was that the most "we expect the property market to increase by over the next ten year period is 10 per cent," adding this contrasted with a 250 per cent gain over the preceeding ten years.

Mr Lenihan said Nama would pay for the assets it was purchasing through the issue of six-month bonds.

"The bonds are of six months duration. They are short-term bonds that are renewable. The rate of interest is half a per cent over the ECB rate," the Minister said.

He was responding to comments from Trinity College Dublin Professor Brian Lucey this morning who said the: "ECB are not backing it or funding it [Nama]...it is the Irish Government, the taxpayer, that is funding it," he said.

Speaking in the Dáil yesterday Mr Lenihan revealed that the Nama will pay about €54 billion to the banks for loans which have a face value of €77 billion.

The banks will have to absorb the difference and have been told to raise private investment to offset the resulting losses.

The Government has indicated that if the banks cannot raise the money themselves, it will invest the capital. This could lead to the State taking up to 70 per cent of Allied Irish Banks (AIB) and 30 per cent of Bank of Ireland.

But market sources said the bank might be able to avoid further Government investment by raising money from private investors or through the sales of assets.

Minister for Finance Brian Lenihan told the Dáil yesterday that the State would on average pay 30 per cent less than the face value of the bank loans. 

However, last night Fine Gael and Labour claimed the main banks, AIB and Bank of Ireland, would escape with a significantly lower discount because of the scale of the problem at the nationalised Anglo Irish Bank skews the average figure provided by the Minister.

The Minister said that Nama would purchase €28 billion in loans from Anglo Irish, €24 billion from AIB, €16 billion from Bank of Ireland, €8 billion from Irish Nationwide and €1 billion from the EBS.

The full extent of bank forbearance with large property borrowers was revealed for the first time when the Minister disclosed that the loans Nama will acquire include €9 billion in overdue interest payments.

In addition, the Government has proposed extending the State bank guarantee by up to five years to allow them to access longer-term debt.

FEASTA :: View topic - Taxation as Indirect Borrowing by Irish Government

Good post, Brian, as is your blog post.

Sorry I missed Richard's NAMA lecture and the rest of the day. The problem with transaction taxes and taxes on earned income is that they rely upon there being transactions or earned income to tax.

It makes much more sense to tax unearned income from privilege which is a continuing flow..

I think that the solution to the NAMA problem lies in a new approach to the property relationship, ie the bundle of rights and obligations that connect the subject individual to the object - location/land.

I think that it is possible for the owners of land, especially mortgaged land, to exchange their rights for a new right of "Co-ownership" occupation of indefinite duration.

ie for as long as they pay a rental they may occupy the location/land.

This rental will comprise two components: firstly a payment made to the rest of society for the exclusive right over the commons of location, and this reflects the value conferred on the location by society's collective investment.

ie this is to all intents and purposes identical to a tax on land rental values. Hong Kong's crown/state rental (land having been on crown leases) shows how this may work as a quasi-tax, which painlessly raises up to 35% of Hong Kong's public revenues.

Secondly, there is what I call the "capital rental", which is a payment made for the use of the investment of money and money's worth in the location.

I advocate that all of the NAMA land should be placed in the hands of neutral custodians, probably local councils. (Note here that most financial assets traded by institutions are nominally owned by custodians, while the institutions trade the economic interests in the assets.)

A land rental value should then be set - most countries have valuation departments that could tell you how that works - and then the difference between that rental and an affordable market rental for the property will be the "capital rental".

This creates a single NAMA Rental Pool which may simply be divided into "n'ths" eg billionths. Banks then exchange their existing rights under their mortgage loans for these "billionths".

The result is that the former owners now become "co-owners" alongside the investors in the land/location, while the banks (and land owners with equity remaining) may sell their "units" to pension investors, sovereign wealth funds and the like.

I think that a rental returning around 1% pa in respect of the value of unimproved land is reasonable, while the Capital Rental will maybe bring in another 1 to 2%. A single Pool of revenues from what is essentially a land-based NAMA Equity would be an extremely solid investment, and an overall return of between 1 and 2% - rising or falling with rental values - is not unreasonable. The price of the Units then depends upon the return required by the investors. (NB -Risk free returns less than 1% are now commonplace on government debt.)

The Occupiers would be responsible for developing and maintaining the property and would be credited with Units in return for doing this.

On the face of it, the sweat equity granted in respect of depreciating property would mean a transfer from existing Unit holder investors to the Occupiers. But in fact there is a flow of rental value into the Pool which is "free", which consists of the use value of the location.

This flow essentially forms the basis of what will be seen to be land-based money creation, since if you think about it, Units redeemable in the right to occupy location are a form of geographically constrained money.

What I am getting to in a rambling sort of way, is that NAMA should not be an organisation but should simply be an agreement or protocol between the different stakeholders:

(a) Custodians - probably local councils;

(b) Occupiers - with an exclusive "co-ownership" right of indefinite duration; (an "evergreen lease" or "co-ownership")

(c) Investors - initially Banks and land owners insofar as they have equity, but subsequently pension investors,and then Occupiers who buy Units in cash or "sweat equity";

(d) Manager - a network of service providers eg valuers, dispute resolution, estate agents; financial liquidity prividers.

For banks, there is no sale, but a one-off debt/equity swap which realises more value than any debt-based solution ever could.

For Ireland there is a new form of National Equity, which any one who wishes to would be able to join in return for taking on the obligations of location and capital rental.

See Pages 8 and 9 here Co-ownership

Shares in AIB and Bank of Ireland made strong gains today, with both finishing up at close of trading. Bank of Ireland finished 18 per cent higher at €3.38, while AIB at €3.37 a gain of 28 per cent.

However, Irish Life & Permanent, which is not participating in the Nama process, saw its share price drop 5 per cent mid-morning, although it regained some ground to close fractionally lower at €5.85.

Green Party leader John Gormley said his party will pull out of Government if its party members reject Nama and the new programme for government at the Green Party's convention scheduled to take place on October 10th.

Speaking on RTÉ's News at One Mr Gormley said his party would be pressing for further amendments to Nama to promote a social dividend and ensure a windfall tax is part of the legislation.

"If Nama and the programme for government is rejected on October 10th we could not continue our participation in Government," he said.

snip--------

The Financial Times said: "Either way Ireland is on the hook. The more banks rally, the more likely Dublin will be stung for the recapitalisations that will surely loom. If they don't, Dublin will have to foot the bill anyway."

Speaking during the resumed Dáil debate on the issue this morning, Mr Cowen rejected suggestions that Nama is a bail-out for bankers and developers.

"Nama is not designed to be and will not be permitted to operate in practice as a bail-out mechanism for anybody who has operated irresponsibly," he said.

Mr Cowen told TDs alternatives to Nama proposed by Fine Gael "unrealistic" and "not founded in any practical plan."

"The suggestion by Deputy Bruton that we can divide most or all of our banks into a good and bad bank system without disrupting the flow of finance to the economy is totally unrealistic and not founded in any practical plan."

Fine Gael leader Enda Kenny said Nama was a "fatally flawed piece of legislation. He told the Dáil this morning it was the "economics of the madhouse, supported by the fiction of long term economic value".

snip--------

The full extent of bank forbearance with large property borrowers was revealed for the first time when the Minister disclosed that the loans Nama will acquire include €9 billion in overdue interest payments.