The establishment of the National Asset Management Agency (NAMA) is probably the biggest financial gamble in the history of the State. Obviously, it is necessary to withhold final judgment on the overall plan until all the details are known and the legislation enacted.
While Finance Minister Brian Lenihan yesterday revealed that NAMA will pay €54 billion for €77bn worth of loans from the banks — representing a discount of almost 30% — there are other crucial figures that need to be disclosed.
Mr Lenihan also revealed the market value of the properties underpinned by the loans is approximately €47bn. This means the Government has put an estimated value of €7bn on the controversial long-term economic value of some of the properties, which has sparked much debate.
What is not clear is how the Government arrived at the €47bn figure for the market value of the properties. Mr Lenihan said that combined drop in property prices was just under 50% since 2007. But given that many commentators agree that development land has fallen by as much as 80%, that figure seems optimistic at best.
The finance minister again stressed that the Government could not publish details of the 1,500 loans that will benefit from the NAMA plan.
The Government has insisted that protecting the interest of the taxpayer is paramount.
Given that the nature and the valuations of those loans is crucial to the success of the plan, it can legitimately be argued that the interests of the taxpayers would be best served if details relating to the 1,500 loans were released into the public domain.
These loans are key to how much money will be needed to be pumped into the banks, and ultimately how much of the banks will be owned by the State.
It was the banks, together with reckless and greedy speculators, who got the country into this mess in the first place. They bear the brunt of the blame and must shoulder the ultimate cost.
Parallels have been drawn to the Government’s bailout of AIB over a quarter of a century ago during the scandal surrounding the Insurance Corporation of Ireland. Ultimately, the Government’s measures were largely successful and most of the costs were subsequently recovered from AIB. But far from amending its ways, AIB has been exposed in recent years for ripping off its own customers by overcharging in various ways.
The Government came to the rescue of AIB in the 1980s, whereas NAMA is attempting the rescue the whole banking system. It should be remembered that this is not the first step in bolstering the banks in the current crisis. The Government already took that step last year by guaranteeing all bank deposits.
The NAMA initiative must be seen as a determined effort not just to rescue but also to reform the banking system. There must be no return to those past reckless practices of greed and irresponsibility that got the banks into this trouble.
Government and the regulator have to be strong and determined. The banks are going to owe the taxpayer for rescuing them this time, and they must not be allowed to forget it.
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