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NAMA: In whose interest?

When NAMA was unveiled the then-government claimed it would actually make more than one billion Euros in profit. Already a loss of over €700 million has been revealed for 2010 and it is set to lose much more. So why does this agency exist asks Conor McCabe.

The creation of the National Assets Management Agency in 2009 was an exercise in power. It was done in the face of vocal opposition, and its role in merging bank debt with sovereign debt played no small part in the arrival of the ECB/IMF in November 2010 and the decimation of Fianna Fáil as a political force in Ireland. The new government’s maintenance of NAMA underlines the assertion that the present economic crisis has revealed a deeper truth, that Ireland harbours more powerful forces than Fianna Fáil. These economic and social forces have greatly undermined the real economy in Ireland, and have at present, through the bank guarantee and NAMA, a drowning man’s grip on the future direction of this country.

On 18 February 2009 the National Treasury Management Agency appointed the economist Dr. Peter Bacon as a special advisor reporting directly to the Minister for Finance, Brian Lenihan. Bacon was given a three-month contract and according to the Irish Times he was hired in order to ‘‘enhance the agency’s team during the recapitalisation process.’’ His remit was to ‘‘access the possibility of creating a “bad bank” or risk insurance scheme to take so-called toxic debts off the banks balance sheets in a bid to “free up new lending.’’

The government wanted a solution which was unique to Ireland, one that would involve moving impaired property loans, as well as the properties used to secure those loans, into a new property company, which would be capitalised and would seek to attract investment on the back of its ‘assets’. It was in order to explore the practicalities of this idea – a toxic property company rather than a bad bank – that the minister hired Dr. Bacon. On 8 April 2009 a press conference took place in Dublin where the result of these efforts, Nama, was presented to the people, Brian Lenihan told the assembled press that the creation of NAMA would ensure that ‘‘optimal value for money is obtained for the taxpayer’’. It would purchase property portfolios from the banks at a discount, and these portfolios would consist of both good and bad loans. The minister reckoned that ‘‘among the loans to be transferred are about €60 billion of land and property loans. The remaining €20 to €30 billion of loans is secured on investment properties – office blocks, shops and hotels – which have been provided as security for the speculative loans drawn by developers.’’

The purpose of NAMA was to inject liquidity into the Irish banking system, to get the economy moving again. It did nothing of the sort. The proposal – to buy loans at a discounted price as a means of recapitalising the banks – carried an inherent contradiction. The larger the discount on the loans, the greater the need to recapitalise the banks. Every cent it saved on the loans was simply one more cent to inject into the banks via State (rather than NAMA) recapitalisation.

This was pointed out in a letter to the Irish Times on 17 April 2009 which was signed by twenty economists. ‘‘Rather than create fully healthy banks capable of functioning without help from the State’’ they wrote, ‘‘the process may continue to leave us with zombie banks that still require the state-sponsored life-support machine that is the liability guarantee.’’ This, of course, is what took place.

Towards the end of the letter, the economists touched upon what they probably believed to be the real reason behind NAMA, but were too cautious to explicitly state out loud. ‘‘The Government’s plans seem likely to keep in place the current management at our biggest banks’’, they said. ‘‘It would be difficult to avoid claims of crony capitalism and golden circles were billions of State monies to be placed into the banks with minimal changes in their governance structure.’’

The Fianna Fáil/Green coalition had hoped that the cost of buying Irish bank developers loans could be placed ‘‘off-books’ and so not counted as part of the national debt. The rating agencies thought otherwise and told the Department of Finance that it treats “off-balance-sheet arrangements [such as NAMA] as direct obligations of the government.’’ As a result, NAMA severely affected Ireland’s credit rating in the months leading up to the momentous events in November 2010.

In July 2011 it was revealed that the loan book of €65 billion which had been bought by NAMA was the result of the failed speculative purchases of just 180 individuals. The agency’s top three ‘clients’ have debts totaling €8.3 billion. Just over one-third of the loans bought by NAMA relate to land – that is, empty green fields which were bought on the expectation of development, but to which nothing had been done. Another 36% of the loans are associated loans – that is, loans backed by commercial investment properties. The remaining 28% are development loans. The figures show that the equation of ghost estates with NAMA is grossly misleading. If you are looking at an empty field on the outskirts of Dublin, Cork or Galway, chances are you’re looking at a failed NAMA investment.

Overall, NAMA has saddled the Irish taxpayer with a loan book which equates to nearly 50% of the country’s GDP. It is an impossible burden to bear. The original suppliers of the debt – the banks – know this, and that is why it has been dumped onto the shoulders of the State.

Irish private bank debt has to be decoupled from sovereign debt if there is to be any chance of growth in the economy. It is a dead weight, and a strong factor in the decision of the international rating agencies to downgrade Ireland’s credit rating. They watched for two years while the Irish government took billions out of the real economy and used that money as an IOU for the betting slips of property speculators.

The fact NAMA continues to exist is testimony to the power of those it is designed to protect. And whoever that is, one thing is certain: it is not us.

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