I argued that the Greens were unlikely to achieve grass roots approval for the legislation at their forthcoming national conference on the issue and he conceded that, as an ethically based party, they might well reject the measure, even if, as he thought likely, they would be decimated in any election arising.  However he felt that Fine Gael, the main opposition party, would ultimately fold its tent and row in behind a perhaps modified version of the Nama proposals because no party would want to inherit the mess that would be created if Nama failed.

I conceded that my faith in Fine Gael, as a conservative opposition party, was wafer thin, but that they had, for once, shown some backbone in articulating an alternative "good bank" proposal. This focuses on retrieving a functioning banking system from the remains of essentially bankrupt banks, not on buying up their toxic debt. Under this scenario the risk and the losses would not be shared by the taxpayer as ownership of the bad debt/assets would remain with the administrators of the bankrupt banks.

He argued that if the state allowed the banks to go bankrupt then Ireland would never again be able to find foreign creditors willing to fund our national debt (and widening Government deficit) and that the government had, in any case, already guaranteed most of the bondholders of bank paper.

I argued that international investors were used to writing off bad investments and would quickly move on to consider new tenders for funds to meet Ireland's credit requirements in an objective and unsentimental way.  There was simply no precedent for a Government bailing out bondholders and shareholders to the extent proposed, and that international investors did not even expect this.  

My banker friend begged to differ on this point, and argued that shareholders had already lost 90% of their investment and that many of these were either Irish pensioners and small investors who would make life very uncomfortable for the Government, or the national pension fund.  So any money the Government saved at one end, it would lose at the other.

I had to concede that the banks had an incredible stranglehold on Irish commercial and political life and noted my incredulity that, other than losing a Chief Executive or Director or two, there had been no focus on improving the management and cost efficiency of the banks themselves.  He noted that he had personally lost 90% of the value of his bank shares and 30/40% of his earnings which he used to get in the form of bonuses, but conceded that the banks had a huge number of incredibly well paid executives who had made incredibly bad decisions.  Reforms would come in due course, he opined, without sounding entirely convinced or convincing about it.

Meanwhile, today, in the real world, the Irish Times has published the third part of its opinion poll results - on the subject of Nama - and they do not make comforting reading for either the banks or the Government: Just 26% of voters show support for setting up Nama - The Irish Times - Sat, Sep 05, 2009

THE PUBLIC has divided views about the National Asset Management Agency (Nama) plan, with more people against the project than for it, although a substantial number of voters have no opinion, according to the latest Irish Times /TNS mrbi poll.

Asked if they supported the Government's Nama proposal as a way of removing bad loans from the banking system, 26 per cent of voters said they were for it, 40 per cent were against and 34 per cent had no opinion. When asked if they favoured nationalising the banks, 36 per cent said they were for, 38 per cent were against and 25 per cent had no opinion.

The latest poll was taken on Monday and Tuesday of this week among a representative sample of 1,000 voters in face-to-face interviews at 100 sampling points in all 43 constituencies. The margin of error is plus or minus 3 per cent.

A striking feature of the poll is that while Fianna Fáil supporters are the most strongly supportive of Nama, Green Party, supporters are the most strongly against.

Among Fianna Fáil voters, 46 per cent favour Nama, while 26 per cent are against. Among the Greens, 50 per cent are against the plan while only 21 per cent are for it.

Labour supporters are almost as hostile as the Greens, with 47 per cent against and 21 per cent for. Among Fine Gael supporters, 44 per cent are against and 25 per cent for the plan. Among Sinn Féin voters, 37 per cent are against and 24 per cent for.

In terms of social class, the strongest support for Nama comes from the best-off AB and C1 categories, with 32 per cent for and 42 per cent against. The strongest opposition comes from the poorest DE category with 19 per cent for, 39 per cent against and 42 per cent having no opinion. In terms of age groups, the strongest support comes from the 25 to 34-year-olds, while in regional terms voters in the rest of Leinster and Connacht Ulster are significantly more supportive than those in Dublin and Munster.

On the prospect of nationalisation, Green Party voters are even more strongly in favour of that approach than Labour supporters, while Fianna Fáil voters are the most sceptical.

Fifty four per cent of Greens favour nationalisation while 26 per cent oppose it. Among Labour supporters, 48 per cent are in favour but 31 per cent are against. Sinn Féin voters are 43 per cent for and 32 per cent against.

Fine Gael voters are almost evenly divided on nationalisation, with 38 per cent for and 37 per cent against while Fianna Fáil supporters are against by 53 per cent to 31 per cent.

The strongest opposition to nationalisation comes from the best-off AB voters, with 44 per cent against and 40 per cent for while the most support for the proposal comes from the least well off DE category, with 36 per cent for and 35 per cent against.

In age terms, the strongest support is from 35 to 49-year-olds who are in favour of nationalisation by 44 per cent to 36 per cent, while the strongest opposition is found among the over-65s who are against by 40 per cent to 30 per cent.

The poll's findings raise serious issues for the Green Party which will hold a special conference in Athlone in a week's time to consider the Nama legislation. Given the strength of opposition among party voters to the legislation and the support for nationalisation, the Greens' Ministers will have their work cut out to get support for the line they have taken in backing the plan.

For the record, the Labour Party is proposing a nationalisation of the banks as this would avoid the need to put any price on the toxic assets at all.  Taxpayers would essentially inherit both the bank's bad assets and ongoing business and thus stood to gain if business recovered without shelling out c. €60 Billion on assets which - if Japan is any guide - may never recover that level of value again.   Shareholders and some bondholders could be largely wiped out under this proposal, depending on the price paid for the nationalised banks.

The Government (and Fine Gael) is opposed to the nationalisation proposal I suspect largely on commercial grounds: So much of the banks "profits" are dependent on screwing customers on bank charges, threatening foreclosure on their homes, and being very hard-nosed about refusing credit to businesses they think might be a credit risk, that a publicly owned bank could never behave in that way.  Ireland is a very small banking market and there is relatively little choice and competition between banks.  Any prospect of unreformed banks recovering after writing down their bad debts depends on it remaining that way.

So will Nama happen, and what will happen if it does?  My guess is that the Greens will oppose Nama but that the Government may reach an accommodation with Fine Gael whereby there will be some "risk sharing" between bondholders and taxpayers.  Now is not exactly a great time for Fine Gael to return to Government.

But unfortunately, I also don't see Nama working as advertised.  Having put c. €60 Billion at risk in the form of an investment in highly speculative assets - an investment my banker friend stressed would be "off-balance sheet" as if this made it somehow less real - the taxpayer will then be asked to stump up c. €10 Billion in investment in the banks themselves to restore their capital adequacy and "get credit flowing to industry again".

Having done so, the taxpayer will then discover that the bankers are paying themselves huge bonuses again, and that credit is still not flowing to industry as required to underpin an economic recovery.  In the meantime Ireland is saddled with a huge public debt (both on and off balance sheet), ever greater dependence on foreign "investors", and an asset cost and tax base still far too inflated to allow competitiveness to be restored any time soon.

How to undo all the positive aspects of the Celtic Tiger in one easy lesson...  In any case the financial and political elites will have preserved their position and the incremental 10% of the workforce who have lost their jobs, thousands of pensioners who have lost their investments and medical benefits, and the great unwashed who will suffer the €5 Billion p.a. cuts in public services identified by the McCarthy report will simply be the victims of a global recession.

The Irish elite had nothing to do with it.  Honest guv...