June 2, 2010
For the past few weeks, Irish banks have not been able to borrow abroad in any manifest way. The market is now as good as shut to us as money retracts from risky countries like Ireland to safer locations like Germany. This pattern is unlikely to change any time soon as the financial world comes to the realisation that the bailouts of recent months are only postponing the day of reckoning.
As credit dries up here completely, the entire bank and recovery strategy of the Government is unraveling and NAMA will be exposed as little more than a class rescue scheme for investors and developers. The cost of trying to stop the market doing its thing — falling — will sky rocket.
Ultimately, our government bond market will seize up, because the Department of Finance is using the bond market as a big skip into which it is throwing all the rubbish of the boom. This policy needs a willing buyer of all these bonds and the buyer needs to believe that “countries don’t go bust” as the chief executive of Citibank announced weeks before the Latin American debt crisis of the 1980s.
There will come a time, possibly sooner than we think, that the sums here won’t add up and the market will panic. In fact, the panic will have less to do with sums and more to do with sentiment. As sentiment gets worse, some of the inconsistencies of NAMA which were swept under the carpet in the storm of government spin over the past few months will be exposed and re-examined.
The first thing to be questioned is the language: think about the title, the National Asset Management Agency. But there are no assets. There are only liabilities. If there were assets, there wouldn’t be any need for NAMA in the first place. And the liabilities are getting worse.
Nor is it national, because it only covers loans above â‚¬5m. And nor is there a management agency; what there is is a bunch of civil servants doling out jobs to, guess who? The same bunch of insiders who caused the problem in the first place.
So the man who valued, for example, the Dublin Glass Bottle site at over â‚¬400m, John Mulcahy, has now been given the job, by Nama, of valuing the same property at considerably less!
The lawyers for Bank of Ireland remain the lawyers for Bank of Ireland, but they are also, inexplicably, the lawyers for NAMA. Arthur Cox don’t seem to think there’s anything wrong with being the lawyers for the seller, Bank of Ireland, and the lawyers for the buyer, NAMA.
Why has the Law Society not said something about this? I am not a lawyer, but if I was looking at this country’s potential and I asked myself, have they learned from the crisis, have they changed? I’d see something like a huge law firm working for both sides as a worrying sign.
Then if I thought about the financial infrastructure what would I see? I’d see that the auditors who signed off on what we now know to have been Anglo Irish Bank’s fictitious balance sheet — Ernst and Young — have been given the job of auditing NAMA. So having failed to spot what might turn out to be a criminal conspiracy at Anglo, Ernst and Young are awarded, by our Government, with a hefty fee from NAMA.
And what about PricewaterhouseCoopers (PWC), auditors to Michael Fingleton’s little outfit, Irish Nationwide Building Society? They, too, have been rewarded for failure with a gig at NAMA.
If I was a savvy investor looking at Ireland, asking myself “will I move into this country?” maybe I’d look at NAMA and realise that it is waltzing the country up a credit cul de sac. So I’d wait.
Let’s examine this inconsistency at the core of NAMA now. Think about how it will work and remember my hunch that it was constructed in part to bail out the professionals who didn’t like commerce but needed fees.
Anybody who’s ever speculated on financial markets knows that you don’t want to be the only buyer in town. NAMA will end up owning all the real estate in the country. It will end up being the biggest estate agent, the biggest hotelier, the biggest owner of golf courses. And we are assured, even though there is no evidence, that it’s going to buy all this stuff cheaply. But the problem is, once it has bought all this stuff, it has to sell it to someone.
And the only way you sell if you’re the only buyer is by selling at an even cheaper price than what you bought the stuff for. That’s the way markets work. But because NAMA was conceived by lawyers, civil servants and academics, they forgot that bit and it’s the taxpayer who will in fact subsidise the professional and property insiders twice: first by bailing out the banks, and second by selling land that we now own at rock bottom prices back to possibly the very people who owned the land during the boom.
NAMA is a class rescue scheme for Ireland’s professional classes, conceived by one of their own, implemented by them and designed for their benefit.
Worse still, it is entirely predicated on resuscitating the property boom that caused the recession in the first place. Without a strong recovery in property, NAMA won’t work, but with a strong recovery in property Ireland won’t work because we will be back to where we started.
The financial markets have seen through this and are refusing to finance the Irish banks. Isn’t it about time we saw through this carry-on too?