This article was published in the Evening Echo on Tuesday 22nd September 2009

The National Asset Management Agency (NAMA) is a bailout.

NAMA will establish a system where the most careless bankers and the greediest developers will be bailed out by the Government using €54 billion in taxpayers’ money.

What makes NAMA a bailout is the fact that the Fianna Fáil Green Government will overpay for the assets it purchases on behalf of the Irish taxpayer. The Minister has announced that he will pay €54 billion for loans worth an estimated €47 billion. The taxpayer will overpay the banks by at least €7 billion and possibly a lot more.

A decade of reckless Government policies has weakened Ireland to the extent that the global economic crisis is being felt more severely here.

The consequences of Galway Tent policies designed to benefit property developers, financiers and Fianna Fáil are now being felt.
• They squandered the benefits of the export led boom of the 1990’s, allowed the country’s finances become dangerously dependent on the property bubble and made no provision for any future crisis.
• They are the reason why today we face an unemployment explosion, savage cuts in public services and crippling taxes.

The Fianna Fáil Green Government’s response to this crisis is to again prioritise the Galway Tent elite above Irish taxpayers.

The NAMA scheme will allow banks to sell the Government their toxic loans. The Government will overpay for these loans allowing the banks to walk away with a €7 billion bonus free of their toxic debt.

Property developers who can no longer make their loan repayments will be saved. The taxpayer will own these loans which are growing daily as unpaid interest is added to the sum already owed. NAMA is unlikely to foreclose with any intensity or urgency on these developers.

The taxpayer will be left owning a bad bank which holds the worst toxic loans in the country.

The Government on behalf of the taxpayer will have accepted the responsibility to pick up the tab for banks and developers who gambled on the property bubble and lost.

NAMA will work as follows:
• The Government acts as agents for the taxpayer.
• The Agents have identified a house which at the height of the property boom was valued at €770,000 but today it is considered to be worth at best €470,000 and probably less in the current falling market.
• The Agents decide to offer the owners €540,000 for the house, substantially above the current market value of the house.
• The Agents have made this offer for two reasons; firstly they know the current owners are in financially difficulty and want to help them and secondly they believe that house prices will increase in the future.

The results of this transaction are:
• The owners of the house can’t believe their luck and jump at the opportunity to sell the house for an amount well above the current value in a falling market.
• The taxpayer is getting a house which is worth far less than what they have paid for it. The current falling market also means that it is likely that the gap between the cost of the house and the value of the house will continue to widen.
• The Agents have put the interests of the owners ahead of those of the taxpayer for whom they act.

The Government’s idea of a bad bank like NAMA is a bad idea and although immediate nationalisation would avoid some of the problems of NAMA, it still represents a high-risk strategy for Irish taxpayers.

There is an alternative.

Fine Gael would establish a new good bank, the National Recovery Bank, funded by the European Central Bank. This approach has many advantages: it would get credit flowing immediately, inject new lending into the economy without delay, and help to stimulate job creation.

The existing retail banks would be given time to clean up their balance sheets and deal with their toxic loans. Those banks that cannot achieve this could then be nationalised and their toxic loans ringfenced to protect the taxpayer.

The Government’s NAMA scheme is a double or quits gamble. It will use €54 billion of taxpayers’ money to bail out those banks and developers that have gambled on the property market and lost. It will then risk this €54 billion in taxpayers’ money betting that there will be another property bubble.

If the €54 billion NAMA bet fails the current generation of Irish taxpayers and their children will be left to pick up the pieces of a shattered country.