Let’s put the horse before the cart and nationalise the broken banks

DO you know how much €90 billion is?

We’re being told all the time it’s the likely amount of money we’re going to have to invest in rescuing the banking system and in putting the banks back on their feet again.

And nobody denies it’s a lot of money. Even Charlie McCreevy, I reckon, who was always so lighthearted about giving taxpayers’ money away, would acknowledge that €90bn is not small beer.

But do you know how much it really is? Think what it costs to run our entire education system – thousands of primary and secondary schools, scores of third-level institutions, tens of thousands of teachers and lecturers, around 100,000 students at any one time.

€90bn would run that entire system for a decade. That’s right – 10 years of the cost of Ireland’s entire education system being used to sort out the banks.

Or if you want another example, €90bn would run our railways, the Dublin bus service, the entire provincial bus service, the LUAS, the DART (probably the Metro too) and the school bus service for the next 200 years. And you could build 40 miles of new motorway a year with the change.

I wrote a sort of jokey piece about NAMA here a couple of weeks ago. I was trying to make the point that this must surely be the first time in the history of the world that a bank’s debts were nationalised, and nothing else.

The logic, it seems to me, can only be understood if we regard the Irish taxpayer as a compassionate and forgiving saint, willing to make whatever sacrifice is necessary to protect institutions that will never be grateful.

Let me tell you, I was surprised how cross the piece made some of my readers. Several people told me that if I really thought there was anything remotely funny about NAMA I needed my head examined. People don’t seem to be able to talk about NAMA – on any side of the argument – without starting to hiss and spit at each other. I can’t remember the last time there was a topic of public debate that made people so cross.

Of course, I don’t think NAMA is funny. Far from it. But I am so far from being able to understand the logic behind it that I am beginning to question my own sanity. As I understand it, the basic proposition behind NAMA is that “we” will take over all the banks’ bad debts.

Among “we” I include the 400,000 unemployed citizens of Ireland, people with a disability, elderly people, people living in poverty. Now, of course, none of these people is a taxpayer – or at least very few of them are – so why include them? Because the amount of overhanging debt we’re going to be left with, for years and years to come, will only be capable of being paid off by cutting back on services for people who need them most.

So people who are poor, elderly, disabled or unemployed are very much among the “we” who are going to take over the banks’ bad debts.

But we’re not actually going to take them over, as such. We’re going to buy them from the banks and then sell them. We’re going to have to wait awhile before we sell them – in fact we’re going to have to wait until the property market recovers enough so that we have at least some chance of getting our money back.

Now there might be some commercial merit in doing something like that in this wonderful free market economy of ours if we could buy the debts at a price that guaranteed we made a profit sometime. That’s the only way the banks themselves have operated throughout their entire history.

But no. If we’re patriotic, we can’t buy the assets at a price that would undermine the banks and weaken their ability to lend. Who are they going to lend to? The rest of us are going to be so broke, if we saddle ourselves with the debts of the banks, that we won’t be able to repay anything they lend us. Hence, they won’t want to lend us anything anyway.

So the proposition is that we take over the bad debts – and pay for them at a price that won’t cause the banks undue hardship. If that means it takes a generation for us to get our money back, or if we never get it back – if we’re still paying for it in three generations’ time – so be it.

The first thing that has to be said about a proposition like that is that you’d never persuade an Irish banker to give you money on those terms.

Just imagine trying to persuade your bank manager that you wanted a mortgage of, say, €500,000 to buy a house. The house is worth €300,000, and you want to repay the mortgage at €100 a week because if you pay any more than that your lifestyle will be affected. He wouldn’t just laugh you out of the bank – he’d have you thrown out.

That’s why the whole thing is so hard to understand – and it’s just as hard to understand the spin that is being put on Garret FitzGerald’s column in last Saturday’s Irish Times.

When I read it first, it seemed he was saying the Dáil had to support whatever proposition is brought forward by the Government, almost sight unseen. And that’s even though he says in the same column that “it was this Government that destroyed our competitiveness through an irresponsible promotion of public spending, and thus inflation. It then aggravated instead of damping down our housing bubble”.

However, he is somewhat more cautious about offering blanket support for the Government than that. He might have been better advised to wait until the various briefings we’re all supposed to get over the next couple of weeks when we’ll see exactly how much the Government is going to pay for these bad debts. But I suspect he will feel free to be critical if he doesn’t agree with the detail of the proposal.

FOR my own part I reckon there is a fundamental flaw in the principle of the proposal, apart from the detail. If we owned the banks in question, we wouldn’t have to negotiate the price we would pay for the debts.

Every single asset behind those debts – the performing ones as well as the non-performing ones – would be ours. We could decide whether to sell them quickly or slowly, or how indeed to put them to use.

Every penny we put into the banks would be an investment in our own property. And once they were profitable again, we could decide whether we wanted to turn them back into private enterprises.

The total share value of Irish banks right now is probably no more than around €5bn. If the Government so wished it could own the banks in the morning – before it had to embark on the riskiest course any Irish government has ever had to undertake.

Isn’t it time we finally put the horse before the cart?