Banking on Nama may be safest option to end crisis

 

State intervention must be kept to a minimum as nationalisation would make banks less accountable, writes SARAH CAREY.

MY HEAD hurts. It’s this row between the pointy heads and the civil servants. The academics want to nationalise the banks and the bureaucrats want Nama. I’ve tried to understand the arguments on either side, but have to admit defeat.

The mathematics is beyond me. I should side with the college lads since I’ve always had a weakness for smart boys. There’s something a bit pervy about their arrogance – that absolute conviction that comes from a lifetime of being the clever clogs in class.

On the other hand, the thought of the officials being wrong is too awful to contemplate. They have to be right, yet the messing over the removal of pensions is hardly confidence building. If they don’t know what they’re doing with a simple thing like the Budget, how can we believe they’re on top of the banking crisis?

They argue that the key issue is not ownership but exposing the full extent of the problem. It’s more important to fess up about the writedown and get on with recapitalisation. Nama is a good stab at front loading that core problem.

The Gang of 20 ( Irish Times, Opinion and Analysis, April 17th) remain confident, but maybe it’s not so easy when you are in the department and it’s your signature on the cheque. Does the burden of responsibility induce meritorious caution or fatal conservatism?

Economists often use behavioural models to predict the consequences of policies, so I’ve decided to put the calculations to one side and focus on human behaviour. The result is that I’ve decided to plump for Nama. It’s not because I’ve no faith in the pointy heads, but because I’ve less in the Government.

If basic management competency is the biggest failing of this Government, then the policy that sees the State intervene the least must be the one that will work best. While Nama makes the Government the country’s biggest property developer, at least they are only managing some of the banks’ assets and not all of them. A narrow quango like Nama should do less harm than a broad one like the HSE.

Further, while the department has argued that nationalisation would send a bad signal to international markets, the actual danger is the message it gives to the banks’ employees.

Would employees, at all levels, behave differently if privately or publicly owned? I think they would. Banks are large institutions and at the retail end have a public service culture. However, they are still private. The level of accountability is higher and the consequences of poor performance graver than in the public service.

Some argue that there have been no consequences for bad bankers, but that’s not true. The only boss left is Eugene Sheehy and he’s a dead chief executive walking. The list of casualties in the public sector is considerably shorter even though it bears equal responsibility for the crisis. Does it amount to one? Paddy Neary?

The department has argued that keeping the banks listed on the stock exchange will ensure transparency. I don’t know about that, but I do think keeping them listed increases the quarter by quarter pressure to perform. The quicker we solve the problem, the better, so we need the drive that only exists within the private sector.

I accept that there are talented people in the public sector, but the inertia of government is more than they can usually bear. Worse, it’s contagious.

Turn bank employees into public servants and I guarantee the malaise will seep in. Workers must already be feeling deeply betrayed and demotivated by the antics of their top executives. How would they feel if their bosses were politicians they might despise even more? I’m convinced nationalisation would result in lethargy at best and unconscious sabotage at worst. I think employees will perform better on the stock market than off it.

The other issue is how the Government might perform as bank managers. I accept Brian Lucey’s point ( Irish TimesOpinion and Analysis, April 27th) that principal officers in the Department of Fisheries would not become loan officers, but the bottom line is that the Minister and the secretary general would be in charge. Lucey says that nationalised banks would operate like a semi-State rather than a government department. Day-to-day distance from the Minister did nothing to insulate Telecom Éireann in its day or the ESB now from a sense of entitlement and poor prioritising.

It’s more about osmosis than interference.

Finally, there’s the exit strategy. The 20 academics argue that it is better that the State manages all of the assets for some of the time (nationalisation) rather than some of the assets all of the time (Nama). Their fundamental assumption is that nationalisation would be temporary and privatisation would take in place in a few years. That’s a proven strategy in emerging markets, but the breadth and depth of the global crisis we’re in is new territory.

Even the IMF’s former chief economist Simon Johnson, who argues for nationalisation, has predicted another Great Depression. If he’s right, why the optimism that sticking a “for sale” sign on The Allied Educational and Permanent Bank of Ireland in three years will get a result? If we all agree that getting out is the trick to going in, with a tough market, wouldn’t it be easier to sell 40 per cent of a bank rather than 100 per cent?

It’s a bit like the art market.

You shouldn’t buy a painting you don’t like assuming you’ll be able to sell it. If you can’t, you could be looking at something quite ugly for a long time.