Fiscal expert says Nama plan is 'right approach'

NEW YORK University professor Nouriel Roubini has said the Government’s plan for a National Asset Management Agency (Nama), is the “right approach”.

Prof Roubini, who in 2006 foresaw the crash in world stock markets and deep global recession, said it was essential that the prices paid for the €77 billion in loans being transferred to Nama reflected the true long-term value of the underlying assets.

“The key thing is that this is done without massive losses for the Government and that it isn’t just a bailout for the bankers and property developers,” Prof Roubini said.

“The other key thing is that the Government buys these assets at a low enough discount so that it minimises the fiscal cost. If it does that and if it also imposes haircuts on shareholders and unsecured creditors, it is doing something that is fair and efficient,” he said.

Prof Roubini, who is due to speak at the International Financial Services Summit (IFSS) in Dublin next month, said he had not studied Nama in sufficient detail to say whether it would succeed, but said the principle was right. “Overall the idea is right. You may want to pay more than current market values, but you should not pay much more unless there is an argument that what you are paying is truly the long-term value of these assets.”

The Government is paying €54 billion for the assets, although it has estimated that their market value is just €47 billion. The formal valuation process has yet to take place, but a draft business plan for Nama published last week noted that Irish property prices had fallen by an average of 50 per cent since early 2007.

However, London School of Economics (LSE) professor Willem Buiter, who is also due to speak at the summit on November 5th, said the Government was mistaken to have opted for a “bad bank” instead of a “good bank” plan.

“That is a big mistake. Basically you create institutions out of the good assets of the banks and you transfer all the unsecured creditors into a bad bank with the bad assets and you give them equity in the good bank. That would have been the way to do it,” Prof Buiter said. “The bad bank is always a bad idea because it means that the Government underwrites all the creditors and creates moral hazard,” he added.

Other speakers at the IFSS are scheduled to include the Minister for Finance Brian Lenihan and Martin Wolf, associate editor and chief economics commentator of the – (Additional reporting Financial Times).