September 13, 2010
No matter what language the government tries to hide behind, the fact is that the taxpayer is having to pay for the Anglo Irish debacle
A grotesquely inadequate and plainly silly plan for Anglo was unveiled last week. Of course, there is a capitalist solution to this: close it down and force the creditors to face up to the responsibility of their own decisions.
Shutting it down is the preferred option because the government has finally given up on its previous contention that the bank could be viable in some shape or form.
Once you leave the simple capitalist option, you start prevaricating and impaling the taxpayer with the cost in one way or another. Once you move away from the obvious, you start disguising what you are doing with all sorts of convoluted language.
It is well worth looking at the language of the last week to shed light on how far our authorities have moved from reality and the lengths they will go to in order to spin a story.
Let’s start with the expression ‘minimising the cost to the taxpayer’. What part of that straightforward statement do Cowen and Lenihan not understand? You minimise the cost to the taxpayer by taking them out of the equation.
If you can’t eliminate it totally, you minimise the cost to the taxpayer by increasing the costs to the creditors. But there was nothing in the ‘new Anglo’ plan that envisaged large discounts being imposed on creditors. So we have to assume that the state is now maximising, not minimising, the cost to the taxpayer.
In fact, the new plan puts the taxpayer centre-stage in the equation on both sides of the balance sheet. We, the taxpayers, are in a worse position now than we were before this latest wheeze.
Now consider the language in the next phase of the Anglo solution. The ‘bank’ is going to be kept open, but will not be allowed to lend. It is to be turned into a two-headed hydra.
Look at the language again. First, of course, is the great Irish name change, which is essential when the state is trying to convince us that a line has been drawn in the sand, as if by changing the language we change the facts. A bit like changing the name of FÃ¡s or the Health Service Executive.
It is assumed by the clever bureaucrats that, by changing the name, the memory of Anglo will go away – despite its â‚¬30 billion-plus debt legacy. From now on, or ‘going forward’ as they say, one part of old Anglo will be something called a ‘funding’ bank. Mind your language again, because there is no such thing as a ‘funding bank’. For a bank to be a bank, it has to take in money on one side and lend it out the other.
But never mind such trifling technicalities. Let’s look at the big idea. The so-called ‘funding bank’ is going to be nothing more than a safe deposit box for Anglo’s ‘deposits’ – which are not deposits at all as you and I know them, but largely comprise ‘loans’ from the Central Bank of Ireland and the European Central Bank. So we are going to guarantee, with more loans, existing loans given by the central banks, whose job it is to be the lender of last resort in the first place. So the central banks are guaranteeing themselves with your future taxes.
The second part of Anglo – the one with all the non-Nama bad loans – is going to be turned into an ‘asset’ management company. But hold on: there are no ‘assets’, because if there were ‘assets’, there would be no need for the company at all. They are liabilities.
In truth, the new company is a property skip that holds all of what Anglo used to call ‘assets’. So it should be called a ‘liability management company’. But that would be too close to using language as it is supposed to be used – to describe something accurately.
Essentially, the non-Nama loans in Anglo are going to get a little Nama of their own. We can call this Nama Beag. After all, what is Nama, but another so-called ‘asset’ management agency?
Except that Nama Beag is not even going to discount loans it takes onto its books, unlike Nama MÃ³r – even though we know that the loans are ‘backed’ by property that is worthless. So not only is the taxpayers’ exposure not being limited in the Anglo deal, but the taxpayer is actually getting a better deal from Nama MÃ³r, which is a con, than from the new Nama Beag.
So how will Nama Beag work with Nama MÃ³r? Let’s look at the numbers. Nama MÃ³r is due to have a life of about ten years. Details on Nama Beag are sketchy, at best, but a ten-year lifespan is not unlikely.
Nama MÃ³r will have about â‚¬80 billion worth of loans on its books but, importantly, it will pay only about â‚¬40 billion for them (judging from writedowns in tranches 1 and 2).
Nama Beag will have â‚¬36 billion ‘worth’ of loans that it will pay â‚¬36 billion for, but they are definitely valued at only half that. So again the word ‘worth’ doesn’t mean value, which it normally means, but something entirely different.
So, both institutions – Nama Beag and Nama MÃ³r – will end up being of similar size and have a similar lifespan. They are in effect two financial skips.
The similarities do not end there though. We, the Irish taxpayers, have been forced to own both of them. Both skips will be mandated to minimise costs to us, even though we didn’t want to own them in the first place. So two institutions will spend the next decade trying to maximise value on a hodgepodge of loans, presumably by selling whatever assets they can find security on into a depressed market that will not provide any profit for them.
But because both have the same owner and the same aim, is there a chance that they might start getting in each other’s way? If they do, what will happen? If the government determines that Nama MÃ³r should make a profit, it will almost certainly be to the cost of Nama Beag. Likewise, if Nama Beag becomes the priority, that will put pressure on Nama MÃ³r’s operation.
Ultimately, as the biggest owner of land in the country, if the two financial skips want to get the market going, they will have to sell the land even more cheaply than they bought it for to generate liquidity. That equates to a bigger bill for you, the taxpayer. That – in the mangled, Orwellian language of the Department of Finance — is what ‘minimising the cost to the taxpayer’ means. Confused? I don’t blame you. You’re supposed to be.