Gambling all for a prize not worth winning


THERE IS an old proverb, much revived by 19th-century Irish nationalists, warning of “three things for a man to avoid: the heels of a horse, the horns of a bull and the smile of an Englishman”, writes FINTAN O’TOOLE

With Nama, we are now betting the house on three equally trustworthy things. The integrity and economic acuity of Fianna Fáil; the wise judgments of “independent” experts from the financial and property worlds; and the rigour of regulators whose traffic lights have two colours: orange for “what the hell are you doing?” and green for “ah sure go ahead”.

Call me suspicious, but I think if I had to gamble maybe €60 billion of public money, I’d go with the more conservative option. See that smiley fellow called Ralph on the frisky mare, leading the big angry bull? Looks like a pretty safe bet to me.

The big problem with Nama, though, is not the risk that it will not work but the almost equally frightening prospect that it will. For this whole deal is a bit like that Age Action raffle ticket that’s been doing the rounds. The second prize is breakfast with Bertie Ahern. Everyone who sees it immediately reaches for the old joke that third prize is dinner with Bertie. The Nama raffle is similar – even if we win, the prize would be pretty grim.

The reason for this is simple enough. Given that the intention is to pay way over the market value of the assets behind all the bad loans, the State can get its money back only if we successfully inflate another property bubble. It is probably true that the property market will not need to return to the hysterically hyped values of 2006 or 2007. But it will have to return to the levels of, say, 2002 or 2003. And those levels were themselves unsustainable. Property prices went so far out of kilter that even if we only pay two-thirds of the face value of the loans, we’ll end up with stuff that could be sold at a profit only in a market that’s still puffed up beyond what is economically or socially sustainable.

Let’s take the admittedly simplistic example of the average price of a second-hand house. If, between 1994 and 2007, that price had risen in line with building cost inflation (itself very high), it would have been €127,000. It was actually €378,000. Even if, in a Nama-type calculation, you take a third off that price, you’d end with a price of over €250,000 – still almost twice what it should have been.

If Nama bought that house, it would have to be able to sell it at what would still be a bubble valuation.

The effect of this on public policy is catastrophic. It is almost certainly being felt even before Nama has actually been established. How else can we explain the otherwise puzzling absence from the official political agenda of the issue at the epicentre of the whole disaster: the refusal to control the price of building land? This was recommended as far back as 1973 in the Kenny report. Governments of all hues (not just Fianna Fáil) failed to implement the report. The issue was examined again in 2000 by the All-Party Oireachtas Committee on the Constitution. Its conclusion was that that Kenny was right to suggest the compulsory purchase of development land at a price modestly above the agricultural value, and that there was no constitutional problem about doing this.

Implementing Kenny should be the first political response to the property crash. It should also be politically easy: the Greens are supposedly committed to it and that Oireachtas committee in 2000 was chaired by Brian Lenihan. So why the silence? Because you can have the Kenny report or you can have Nama but you can’t have both. Implementing Kenny would mean bringing down the market value of development land to 25 per cent above the agricultural value. That would, at a stroke, massively devalue the huge landbanks that the State will be hoping to flog off for prices way above their current values.

If Nama goes ahead, in other words, it becomes impossible for us even to learn the basic lessons of the crash. Instead of going back to an idea of housing as a basic social need, we’ll have to continue to see it as a commodity and a speculative investment. Instead of seeing huge mortgages for overvalued properties as a disaster, we’ll have to go back to pretending that they are signs of rugged good health.

The fundamental reform in attitudes, values and priorities that is crucial to our survival will be impossible. All we’ll have is an economic version of Sophie’s Choice: heads, we lose billions of public money; tails we inflate another bubble.

This is why Nama has to be stopped, and why public opinion has to make itself felt. If Nama goes ahead without the largest public demonstrations ever seen in the State, we deserve what we get. Our kids deserve better.

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