Nama for the naive

Wed, Mar 31, 2010, 01:00

Confused by Nama? Think of it as colonic irrigation for the financial system. Then dream of ways to spend the €21.8 billion committed to the banks yesterday

I already know about Nama. I watch The Frontline. I am capable of looking up Wikipedia. Don’t insult me with your patronising ‘Nama for Dummies’ article. I’ve played Balderdash. I can do this. If you’re so smart, what is Nama then?

Is it the Natural Asphalt Maintenance Agency, without whose constant vigilance sports pitches around the country would be unplayable?You don’t have a notion do you?

No.Right. Well, it’s the National Assets Management Agency. It was set up by the Government to help fix the banking crisis. It’s going to take on €81 billion worth of mainly toxic property loans from the main banks. It also involves a capital bailout of the main banks totalling between €32.8 billion and 42.8 billion, when you include the €11 million already invested in Anglo Irish Bank, AIB and the Bank of Ireland. The biggest and baddest sums of money were loaned to property developers during the Celtic Tiger. These builders and developers can’t pay back their loans because of the property crash, hence the dreadful state of the bank’s loan books. The land and property has been drastically devalued. It’s Nama and the taxpayer to the rescue.

It sounds like the builder’s profits during the boom were theirs, but their losses post-boom are ours?You could say that. Nama was established so that the banks wouldn’t have to close under these crippling loans. The agency is what they call a “bad bank”.

I thought all banks were bad?Fair point. But this one isn’t bad in a wicked sense. And to further confuse you it’s not really a bank either, more of a means for the State to take the “underperforming” loans from the existing banks so that they can live to survive/squander another day. There are some “good” loans in the mix too, but the bad outweigh the good.

You are right. I am confused.Okay, let’s use an analogy from the detox industry. Think of the banks as a group of people who have been gorging for years on rich food and vintage champagne and smoking too many fat cigars. Not surprisingly they now have a multibillion-euro case of gout. The banks are almost at death’s door, they can barely digest a can of baked beans never mind a kilo of caviar, so Nama is being wheeled in by the Government like a massive colonic irrigation machine to clean out their innards.

That’s disgusting.Bear with me. If looking at the contents of colonic irrigation tubes is your thing, you will, as Nama proceeds, see ghost housing estates, empty state-of-the-art office blocks and the Fianna Fáil Galway Races tent floating out of the banking system and down the Nama irrigation tube. If Nama works, the banks’ digestive systems may eventually start operating normally again, even though there will still be all the smaller loans under €5 million – your mortgage, my overdraft, your car loan, my top-up mortgage – in its belly.

I don’t like where this is going. Doesn’t your analogy mean that the banks’ toxins will be transferred into us, the innocent taxpayer? Where’s our colonic irrigation machine thingy? Where’s our Nama?We don’t get one. We are relying on Nama to buy the bad debts at a good price and somehow make the devalued assets work for us, the taxpayer. Detractors say it’s a highly risky strategy with no guarantee we will break even, never mind make a return on the investment. If Nama works, we could end up with guts as pristine as the late Princess Diana’s, a committed fan of the colonic procedure. If it doesn’t, let’s just say the whole country is going to need a lifetime’s supply of Rennie.

So what happened about Nama yesterday? And what’s all this about haircuts?Yesterday Nama announced that the first lot of loans have been bought from Irish Nationwide Building Society and EBS building society, which came to about €810 million. The first loans from Bank of Ireland will be bought at the end of the week. Nama also revealed the discount they got on the loans. These discounts (58 per cent for Irish Nationwide and 37 per cent for EBS) are known as “haircuts”. Basically, the shorter the haircut, the better off we taxpayers are. In barber terms we want a close-shaven number one. We definitely don’t want a mullet.

Was that all that happened?No, the Financial Regulator also announced how much capital the banks must raise in order to absorb losses. And the Minister for Finance, Brian Lenihan, told the Dáil how much capital the banks and building societies would need and revealed the level of State ownership of the banks.

So will the Government own the banks when all the loans go through?Well, they will own a certain percentage of them. The State already owns Anglo Irish Bank and will probably take a majority stake in AIB and a minority stake in Bank of Ireland. It will also control EBS and Irish Nationwide.

How much is it going to cost us?Roughly €6,000 each. That’s just the recapitalisation of the banks – it doesn’t include the cost of Nama. We won’t know the full cost for quite some time.

If Nama succeeds, will lending to small businesses resume?Yes. If it succeeds.

And will I be able to get a mortgage?Yes. Maybe. Okay, look, it will be hard. You’ll have to jump through more stringent financial hoops than ever. And then maybe promise them your first-born.

Will this last as long as the Moriarty tribunal?Nama will keep going until the last property loan is settled. Could be 10 or 15 years – or even more.

So is working for Nama one of the most secure jobs in the country?You bet.

Can you give me a Nama-related vignette to impress people with at dinner parties?Happy to oblige. “There’s a huge con job going on here. (I don’t mean to suggest that members of the Government are deliberately misleading the public. Things are much worse than that – they actually believe this stuff.)” You needn’t mention that you nicked the quote from our own Fintan O’Toole.

What if I want to stick up for Nama?Brian Lenihan is your only man. He says he is ‘‘satisfied that the work done by Nama in the first round of valuations will be credible”.

Thanks for that. Now, can you lend us a few quid?Sorry. I’m completely broke.