Brian's Blog

I wish to make the following points about Nama's new business plan:

1. At best, it is a "concept plan" describing operational arrangements, short-term work plan and structures. It may be a plan but it is not a business one.
   
   
2. Considering that it relates to a loan portfolio of €81 billion, it includes no pro-forma projections and its financial forecasts are confined to a simple 4x4 table containing only nine values summarising Nama's activities for three scenarios over the next ten years! 
   
   
3. The plan indicates that Nama will use the amortised cost method of accounting. This ensures that the true extent of the bale out and foregone interest, exceeding €40 billion, will not appear in its accounts.
   
   
4. Nama says that it will take a neutral view on future property prices, will not engage in speculating hoarding and will wind up in just seven-ten years. This points to a short-term, uncommercial approach and to fire sales, negating a key reason for setting up Nama.
   
   
5. Nama's intention to pursue debtors to the "greatest possible extent" really only refers to recovering the cost of acquiring loans from the banks rather than to the much higher nominal value of the loans owed by developers.

In contrast to its own plan, Nama is seeking extremely detailed business plans from its debtors and its recently published quarterly financial report contain dozens of pages of tables. Clearly, Nama's approach is to disclose as little as possible about future prospects and intentions but endless detail after the horse has bolted. This resembles the "everything is fine" strategies of the banks that it is meant to be rescuing.

Letter published in the Sunday Business Post on 11th July 2010.  For a more detailed assessment of Nama's plan, see Nama's New Business Plan. 

Nama's latest so-called business plan (dated 30th June 2010) is by no stretch of the imagination a business plan in the accepted sense of the word. At best, it is a "concept plan" describing proposed operational arrangements, short term work plan, organisational and corporate structure along with a review of progress and series of statements relating to accounting matters, proposed operating principles and similar. It may be a plan but it is certainly not a business one.

The plan is remarkably short on numbers for a business plan linked to a loan portfolio of €81 billion. There are no operational or financial projections of any note and no pro-forma projections of any kind. Clearly Nama has learnt from the poor reception given to its first business plan (October 2009) that the fewer the numbers it supplies the better (for it).

Our comments on Nama's first business plan include the following:

• Nama's Business Plan
• Nama - A Flawed Business Plan
• Nama - Horses, Carts & Stable Doors

In the latest plan, financial projections are confined to a simple 4x4 table containing just nine (yes, nine) values presenting the net present values of Nama's activities over the next ten years for three scenarios i.e. it offers a mere three values per scenario.

Given that Nama will be taking over loans amounting to almost half of Ireland's GDP, its business plan should, at a minimum, have included "scenario-based" P&L statements and balance sheet projections as well as cashflow forecasts for the ten years along with explicit and clear assumptions. These would have given a fuller picture and facilitated analyses which might have helped anticipate problems identical to those being experienced by the banks that Nama is seeking to rescue. For more on this, see my Open Letter to Nama's Board.

Some specific items in the new plan that caught my attention:

1. It is even less transparent and useful than the initial draft. After the draft was published, I had thought of sending Nama a copy of Free-Plan, a business plan template available for free download from the PlanWare website. It has over 0.25 million registered users covering a huge range of industries etc. If anyone from Nama is reading this, they can download Free-Plan using this link http://www.planware.org/freeplan.zip It would not take much effort to adjust it to suit Nama and would result in vastly improved plan both as regards scope, structure and content.
   
   

2. The new plan indicates that Nama will operate as an "independent commercial entity". However, it also states that its life will be seven-ten years (as determined by the Minister for Finance!). This is much too short a time frame for Nama to realise an optimal return for taxpayers - the chances are that Ireland will still be in the "recovery ward" after the 2008-10 recession and Nama will be selling off properties or doing deals close to the bottom of the cycle.
   
   Strangely, the plan indicates that "NAMA will not engage in any speculative hoarding of assets. Strategy will be shaped by a neutral view as to future market movements on a portfolio basis". This strategy is completely un-commercial and will ensure that third-parties, rather than taxpayers, will get the greatest benefit from any upswing in the property market as we approach the 2020s.
   
   

3. The plan states that "Nama will pursue all debts owed by debtors to the greatest possible extent" on page 2, 7, 8 and 10. It also says that "debtors will continue to be liable to Nama for full loan balance recovery of €81 billion" but that the recoveries assumed in its NPV projections are based on the amounts that would be recovered if NAMA foreclosed on debtors and underlying assets had to be realised by reference to the long-term economic value of the assets".
   
   This all means is that Nama's "official" debts only relate to the actual payments made to acquire loans from the covered institutions rather than to the nominal value of these loans. In other words, Nama does not appear to be officially expecting (or demanding) any payment of the haircut on these loans with the result that its debtors could be securing a bale out of up to €40 billion (based on the 50% discount being paid by Nama for the loans). This view is confirmed by looking at the accounting treatment of the loans (€814 million nominal) from EBS and INBS which were taken into Nama's balance sheet (at €371 million) during the first quarter of 2010 (see page 17 and accompanying note in Nama's quarterly financial statements for period ended 31 March 2010).
   
   This huge "forgiveness" of debtors i.e. bale out for developers, merely merits a note in the accounts. At the very least, Nama should show the nominal value of the loans up front in its balance sheets and clearly indicates write off as they arise.
   
   
4. Nama is adopting an accounting policy (page 18) which "considers expected cash flows, not contractual cash flows, on loans. This means that the Profit & Loss account will reflect what is happening in reality in cashflow terms, rather than taking income to the Profit & Loss account that is not cashflow-based e.g. NAMA will not accrue interest rollup to its Profit & Loss account. It reflects an accounting approach which values the loans by taking the 'actual' initial value plus future expected cashflows less potential impairments."
   
   However, it also means that Nama will be effectively writing off almost all rolled up (or unpayable) interest arising over the next ten years! Based on the draft business plan (October 2009), we estimated that write offs of rolled-up interest could amount to €11 billion over the ten years to 2020 - see Nama - The "real" Default Rate for more on this.
   
   The latest business plan indicates that only about 25% of acquired loans will be income producing (as compared with 40% estimated in the October 2009 plan) and suggests that our original estimate for rolled up interest write offs is very conservative.
   
   
5. The discount rate used in the scenario projections in the business plan was 5.5%. This is much too low to cover the risks facing Nama. For example, the October 2009 plan indicated that the NPV (using a 5% discount rate) for its activities over the ten years to 2020 would be €4.8 billion. The base case in the latest plan suggests a lower NPV of €1 billion.
   
   When account is taken of the plan's expectation that Nama's operating costs will be €1.04 billion lower than originally envisaged, there has been deterioration in Nama's projected profitability of about €5 billion in the space of just nine months. Proof positive that Nama is not risk-free and that a much higher discount rate should be used.
   
   

6. The projected NPV in the new plan for Nama's activities over the ten years is €1 billion (scenario A) as compared with €4.6 billion in the initial plan.
   
   If, for simplicity, we ignore the the effect of discounting and simply add back the €2.64 billion expenses to the projected NPV in the initial plan we get a value of €7.44 billion representing the total projected contribution to Nama's expenses and "profit" over the ten years. If, for the new plan, we add back the updated forecast of expenses (reduced to €1.6 billion) to scenario A's NPV, we get €2.4 billion. The difference (€5.04 billion) is a indicator of the deterioration in the outlook for Nama's activities in just nine months. If this trend were to continue then Nama is in real trouble.

7. Given the inadequacy of Nama's published business plan, I wonder does it have a different one for internal use and, if so, is it clearer or different? In either case, surely it should have been published? How acceptable is it for Nama to have two separate plans but keep one hidden? Surely, there should be only one plan. 

Where is the openness and transparency?

Its not there and, worse still, there are clear signs that Nama is striving to bury losses of up to €50 billion (haircut plus interest write offs). In contrast, it is seeking extremely detailed business plans from its debtors and the statuary financial reports covering its first three months operations contain dozens of pages of tables.

Clearly, Nama's strategy is to disclose as little as possible about future prospects and intentions but endless detail after the horse has bolted. This is no way to run an organisation that could end up costing taxpayers tens of billions and resembles the "in denial" strategies of the very same banks that it is meant to be rescuing. 
 

If the mooted property tax is value-based, how can taxpayers value properties in a volatile market in the absence of reliable data? For example, my home was worth about €900,000 at the peak; is worth €650,000 by reference to local asking prices; is worth €360,000 based on a multiple (15x) of local rent levels; and valued at €175,000 based on a pre-boom multiple of five times current average earnings.

Leaving valuations aside, how collectible is a property tax given that over 4% of mortgages are more than 90 days in arrears, many more mortgages are interest-only, thousands more are receiving mortgage interest supplements and over 300,000 households are moving into negative equity having possibly paid substantial stamp duty on their purchases?

Letter published in the Irish Times on 28th June 2010.

The Honohan Report said there was a ''moral hazard'' involved in the blanket bank guarantee, ''though this argument does not appear to have been made''.

The chairman of Nama and the Financial Regulator have recently suggested that it would not be possible to assist people with distressed mortgages, due to ''moral hazard''.

So where is the moral hazard for the politicians, administrators, bankers, developers and related professionals who created the financial crisis, but continue to hold positions of power, draw huge pensions, operate insolvent businesses and get massive bailouts, courtesy of taxpayers?

Letter published in the Sunday Business Post on 27th June 2010.

So, a second rate-leader with a first-rate front bench is going to end up with a new second-rate bench. Hardly, a recipe for electoral success.

Letter published in the Irish Times on 19th June 2010.

Recent comments by Nama's Chairman suggest that it is moving the goal posts and is no longer going to do what it was set up to do, namely, to recover as much as possible of the loans transferred to it from the banks.

Instead, it appears that Nama is going to only recover what it is paying for these loans plus its expenses and that it intends to wrap up this process in seven to ten years instead of the original ten to fifteen years.

On this basis, Nama could be writing off, or forgiving, about €30 billion of debts as well as substantial unpaid interest.

Letter published in the Sunday Business Post on 20th June 2010. See also, the Open Letter to Nama's Board which discusses this matter in greater detail.

I've sent this Open Letter to Nama's Board expressing concern that Nama appears to be scaling back its original mission at a potentially enormous cost to the taxpayer. Basically, it appears that Nama may be moving the goal posts and engaging in mission creep.

While I fully accept that no plan "survives first contact with the enemy", the Nama concept and its original business plan were prepared following extensive studies commissioned by the Minister for Finance into the loan portfolios of the banks. It appears that these expensive studies all missed the fact that loan documentation was poor, security was not properly charged, debt/equity ratios of many borrowers were ridiculously high, assets were being pledged as security on multiple loans, loans were being restructured or interest only. Also, where were the banks' internal/external auditors, non-executive directors and legal staff/advisers during this carry on? It is very hard to accept that no one had any insights into the real condition of the banks' property-related loan portfolios.

If Nama's mission is to be changed, I think that, in the light of changed circumstances, it must  toughen its approach to securing repayment of the €80 billion of loans being taken onto its books instead of watering down its targets and reducing its life span at great cost to the taxpayer, economy and society.

UPDATE - 1

The Chairman of Nama has, when speaking at the CPA's Annual Conference on 4th June 2010, sought to clarify Nama's core objectives in the following terms:

NAMA's core commercial objective will be to recover for the taxpayer whatever it has paid for the loans in addition to whatever it has invested to enhance property assets underlying those loans. This objective has not been determined by NAMA; it has, in fact, been set for us by the legislature under Section 10 of the NAMA Act. There has been some comment that the consequence of this objective is that NAMA, having recovered its outlay, will then absolve borrowers of their further obligations. This is absolutely not the case. Borrowers, as both I and NAMA's CEO Brendan McDonagh have already said on a number of occasions, will continue to be liable for the debts that they have incurred.

He also says that "NAMA is expected to have a lifespan of seven to ten years and when, in the view of the Minister for Finance, it has made sufficient progress towards achieving its overall objectives, it will be wound up." His full speech is here.

The Chairman spoke of reserving the right to recover arrears if a borrower regains the capacity to repay debts. It may be appropriate for Revenue to follow this route in respect of a tiny proportion of its clients but in Nama's case arrears could amount to half of all borrowings! This highly qualified, weak-kneed approach simply confirms the perception that Nama does not really intend to pursue borrowers for all their debts. It would be interesting to know whether the business plans being prepared by borrowers are intended to explain how all borrowings are going to be repaid or merely enough to enable Nama recover its costs. If the latter, then it is clear that Nama expects to write off huge debts (€30 billion or more) at the expense of the taxpayer. Finally, all the signs are that any economy recovery is going to be extremely slow and consequently Nama, by foreshortening its life by up to eight years, could miss an upswing in the property market at great loss to the taxpayer and gain for its delinquent borrowers.

Notwithstanding the Chairman's clarifications, I still take issue with Nama's core objective as being too limited and too short term as stated in my open letter to the board. 

Section 10 of the Nama Act dealing with the purpose of Nama was mentioned by the Chairman. It refers back to Section 2 which states that the Act's purposes include protection of the taxpayer and contributing to social and economic development.

Maybe, to make things crystal clear, Nama should state that maximising payments of all debts, over and above the cost of acquiring loans and recovering its expenses, is an explicit objective under Section 10 Subsection (2) (c). This would help minimise any misunderstandings amongst taxpayers or Nama's borrowers and ensure that Nama is not wound up by the Minister for Finance as soon as it breaks even or that borrowers' business plans merely target Nama's breakeven point.

The Irish Times reported (26th May) that the Financial Regulator has said that there were no "silver bullets" to assist people with distressed mortgages due to "moral hazard".

Where is this moral hazard for all the politicians, administrators, bankers, developers and related professionals who created the financial crisis but continue to hold positions of power, draw huge pensions, operate insolvent businesses and get massive bale-outs courtesy of taxpayers?

To my mind, the Financial Regulator has crossed a line by destinguishing between "moral hazard" for developers/bankers (not needed) and for "the little people" (needed to teach people lessons) and thereby seems to have aligned himself with the former happy campers in the Galway tent.

The headline on page one of last week's Markets stated "€5.5 billion-worth of mortgages now in arrears". This doesn't include the many thousands of mortgage holders with restructured loans or the hundreds of thousands being locked into negative equity amounting to €10-15 billion. Page two of Markets indicates that the Minister for Justice has ruled out a so-called 'Nama for the people' on the grounds that lenders or taxpayers must take the pain if borrowers do not replay their debts.

Contrast this with the treatment of developers and banks. Taxpayers, including those in negative equity, are being forced to assume at least €40 billion of additional debt to pay for their bad loans and decisions. And in a classic case of pass the parcel, Nama will shortly start writing off, effectively forgiving, about €20 billion of developers' debts due their inability to pay. And this takes no account of the massive write-offs directly incurred by the banks.

Where the justice in this when developers can also avail of tax breaks and losses, legal loopholes, ring-fencing, limited liability and expensive advice to duck their debts?

Letter published in the Sunday Business Post on 30th May 2010.

In addition to whistleblower legislation, would it be feasible to alter the guilty requirements for certain types of white-collar crime to a civil rather than the virtually unprovable criminal standard of proof? This should speed up the collection and presentation of evidence and reduce the duration and complexity of trials.

Letter published in the Irish Times on 27th May 2010.

The call by Alan Dukes, director of Anglo Irish Bank, for Nama to be covered by the Freedom of Information Act should also embrace Anglo given that it could account for about half of all loans going into Nama. This should enable taxpayers to find out about Anglo's bondholders, the cost of winding up and its extraordinary lending decisions.

By my reckoning Nama will, unless it is very lucky or tough-minded, have to write off about €11 billion of unpaid interest on top of loan defaults of least €20 billion over the next ten years. Given the scale of these losses, it is essential that Nama's and Anglo's plans and operations be open to maximum public scrutiny.

Letter published in the Sunday Business Post on 16th May 2010.

Solidarity with who? Arguably, every cent raised by the National Solidarity Bond will be needed to bale out reckless banks and greedy developers rather than improve the infrastructure.

Letter published in the Irish Times on 1st May 2010.

If you open the home page for Nama and view its source (via View, Source with IE), you should see (near the top) that its meta tag for keywords contains the following:

" ireland, treasury, debt management, bonds, exchequer,
          europe, euro, EU, credit, economic, commercial paper,
          notes, exchange, programme, national, agency, dealing,
          primary, market, short-term, long-tern, currency, sovereign,
          asset,saving certs, saving bank, instalment saving, prize bonds,
          post office saving bank, group saving schemes, fexco, an post, tax, savings"

The keywords towards the end raise some interesting questions! Is Nama going start a savings bank, take over Fexco and An Post etc.?  It would appear that Nama is not simply content with using taxpayers' money to bail out builders and banks, it also wants our leftover savings.

You couldn't make it up!

These three letters from me about Nama and the banking crisis were published in the Sunday Business Post over the three Sundays commencing 18th April 2010:

Updated Cost of Crisis

On 22nd March you published a letter from me indicating that the banking crisis could cost taxpayers up to €35 billion. In the light of recent revelations, my "worst" case estimate has been upped to €47 billion. This is additional to related interest payments, social and economic costs and forfeiture of future investment opportunities.

How is this going to be paid for? Surely, it would be unrealistic to expect the cost to be shouldered by the lower paid who, by definition, are having trouble making ends meet. On this basis, the only realistic answer is a new levy on high earners on the grounds that they can still enjoy boom-time lifestyles and probably don't pay full taxes thanks to untaxed pension contributions and tax allowances arising from the ill-fated building binge. I can think of several memorable names for such a levy!

Lead letter published on 18th April 2010.

Haircuts and Scalping

Much attention has focused on the larger than expected haircut on the €81 billion of bank loans going into Nama. However, this haircut amounts to a scalping for taxpayers as it means that developers will walk away from residual debts of €36 billion if Nama merely breaks even over the next decade.

Accordingly, Nama's mission must be to collect as much of the haircut as possible - every unpaid billion euro is in effect a donation by taxpayers to developers' gambling debts and their incompetent banking pals. This means no sweetheart deals or fire sales, and maximum enforcement no matter how long it takes or difficult it proves.

Lead letter published on 25th April 2010.

Phantom Funds

Your front page headline "Phantom funds make up to 66% of INBS income" (25th April) could just as easily refer to Nama. Buried in the financial projections of Nama's draft business plan is evidence that it expects to roll up about €5 billion of interest in its initial three years and there is no indication that any of these phantom funds or "unrealised interest" will ever be paid. Indeed, I estimate that they could amount to €11 billion over ten years to 2020 and would almost equal the projected interest actually paid by borrowers. The Nama plan is silent on this possible write off.

It is interesting to see how the plan, issued with great flourish and used to justify Nama to the electorate and secure Eurostat approval for off-balance sheet borrowing, has been suddenly downgraded to "illustrative"  before a Joint Oireachtas Committee. Of course, the best approach would be to include Nama in the Freedom of Information Act to facilitate access to details of Nama's plans and operations.

Letter published on 2nd May 2010.

As indicated in my posting Your Country Your Call, I submitted an idea entitled New Republic - New Constitution proposing that a Citizens' Assembly be established to help prepare a new Constitution to mark the centenary of the 1916 Rising. You can vote for my entry here.

In this posting, I elaborate on the proposal by suggesting some possible changes to the 1937 Constitution, I cannot be too specific as I don't have all the answers and don't even know all the right questions!  Purposefully, I have steered clear of some potentially controversial issues like the status of Irish, religion and the family. Constitutional law can be very technical and it would be important to consult widely via the proposed Citizens' Assembly and to secure the help of experts and other interested parties.

You can view the Constitution or buy a copy in bookshops for under €3. Relevant material on the Internet includes the following:

• Wikipedia on the Irish Constitution
• All-Party Oireachtas Committee on the Constitution
• Joint Committee on the Constitutional Amendment on Children
• Google search for Irish Constitution

Of course, the political parties have their own views on possible constitutional changes as do many representative and special interest groups.

Here are my thoughts to get the ball rolling:

I have submitted a proposal entitled New Republic - New Constitution to the Your Country Your Call competition which was launched by the President of Ireland. You can see my entry and, hopefully vote for it, at http://tinyurl.com/y7en6rh.

It proposes that the Citizens' Assembly mechanism be used to undertake a comprehensive review of the 1937 Constitution with a view to a new Constitution being put to a referendum ahead of the centenary of the 1916 Rising. A New Republic with a New Constitution would be a much more appropriate way to celebrate this than the predictable parades, flags and monuments.

I had been kicking the idea around for some time but was unable to see how it be progressed without being high-jacked by politicians for their own ends. Several references to Citizens' Assemblies in the inspiring Renewing the Republic series (published by the Irish Times during March/April) were the keys to the door!

Here is my full proposal:

If the Government is powerless to prevent pay increases at the State-owned Anglo Irish Bank, what hope has it of ensuring that the credit policies of the other banks concentrate on helping SMEs rather than bolstering capital bases to benefit owners and bondholders?

Letter published in the Irish Times on 26th March 2010.

Your correspondent Henry Roberts (7th April) makes a good point but has mixed up apples and oranges. The €15.3 billion quoted for California refers to its expected budget deficit for 2010-11 i.e. excess of expenditure over income. The good news is that the €79.3 billion quoted for Ireland relates to our total national debt rather than the budgeted deficit. However, the bad news is that this national debt is about to double thanks to Nama, bank bale outs and ongoing budget deficits.

Letter published in the Irish Times on 8th April 2010.

The following is an update of our previous estimate of the direct cost of the Irish banking crisis following the announcements on Bail-Out Tuesday (30th March 2010) by the Minister for Finance, Central Bank and Financial Regulator.

Our previous estimate was that the ultimate direct cost could be between €12.2 billion (best case) and €34.2 billion (worst case) with the most likely cost being €23.2 billion.

Our updated estimate is €22.8 billion (best case), €46.5 billion (worst case) and €34.7 billion (most likely). The central finding is that the most likely cost has increased by about 50% and our previous worst case estimate has effectively become the most likely.

The updated most likely cost amounts to three years' income tax receipts - equivalent to about €17,000 per taxpayer, or six months' average earnings.

This table presents the basis of our estimates. They exclude the cost of borrowings, dividend/coupons payments and any profits from share stakes, and they ignore the massive social and economic costs of the crisis.

Ignoring timing differences, crisis-related borrowings could theoretically hit €83 billion comprising cash provided to covered institutions (€38 billion) plus the Nama bonds (€45 billion). This takes account of the fact that any share investments made by the National Pension Reserve Fund are effectively funded by borrowings via the NTMA. Again ignoring timing issues, the annual interest cost could peak at about €3.8 billion before allowing for possible interest, dividend and coupon receipts.This is equivalent to about one-third of annual income tax receipts. At a guess, the net annual interest cost to the taxpayer could exceed €1 billion per annum. 

Rough calculations suggest that, in the "worst" case, the banking crisis could ultimately cost taxpayers about €35 billion based on €10.8 billion expended to date, €14 billion for further bail outs and partial nationalisations, and a provision of €10 billion to cover Nama losses.

This is equivalent to about three years' income tax receipts, or €17,000 - or six months' average earnings - per taxpayer. Related borrowings would peak at about €79 billion with annual interest of about €3.5 billion either borrowed or paid by taxpayers. It takes no account of broader economic and social consequences.

Given the magnitude of the likely losses, it is truly extraordinary that a full public enquiry is not already well underway. Maybe, this because most of those who created, or failed to prevent, the crisis are still in charge.

Lead letter published in the Sunday Business Post on 22nd March 2010.

Some additional comments:

1. In a "best" case scenario, triggered by a miraculous resumption of growth, the foregoing cost (€35 billion) might be reduced by two-thirds thanks to Nama achieving better than break even, repayments by some banks and proceeds of bank share sales.
   
   
2. Based on the average of "best" and "worst" cases, the "most likely" direct cost of the banking crisis could be about €24 billion.

For the record, the key assumptions were as follows:

• €10.8 billion already expended: €3.5 billion to Bank of Ireland and AIB; €3.8 billion to Anglo Irish Bank.
• €13.4 billion for further bale outs etc.: €6 billion for Anglo; €2 billion for Irish Nationwide and €0.4 billion for EBS; €5 billion in new equity to be shared between Bank of Ireland and AIB.
• Provision for Nama losses: €10 billion based on 20% of the €54 billion to be paid for loans from the covered institutions.
• "Best" case provision assumed that all funds (€12.2 billion) to Anglo, Irish Nationwide and EBS are written off; that Nama breaks-even; and that preference and ordinary share investments in AIB and Bank of Ireland are recovered at cost,
• Peak borrowings comprise cash provided to the covered institutions (€24.2 billion) plus the Nama bonds (€54 billion). This takes account of the fact that any share investments made by the National Pension Reserve Fund are effectively funded by borrowings via the NTMA.
• Assumed interest rate on these borrowings is 4.5% (current yield on 10-year Government bonds).

The foregoing estimates exclude any possible losses linked to €10 billion provided by the Central Bank to Anglo Irish Bank under Master Loan Repurchase Agreements last March. This is secured against collateral of €14.5 billion provided by Anglo. For more information, see Outsiders Pay for Insiders Greed by David McWilliams in the Sunday Business Post and Anglo's latest fun in the sun by Dr. Constantin Gurdgiev.

Following publication of the Report of the Innovation Task Force in March 2010, I thought it would be interesting to dust off a report entitled Stimulating Indigenous High Tech Manufacturing Industry (SIHTMI) which I wrote back in 1983 for an Education, Innovation and Entrepeneurship Research Programme.

Here is the Full SIHTMI Report  (140 pages) and a Summary.

To place 1983 in context, it was the year that:

• The domain name system for the Internet was created.
• Compaq launched the first portable PC.
• 64k 8-bit memory devices were the norm.
• Lotus 1-2-3 and the IBM PC XT were launched.
• World market for NMR imaging machines was only 80 units.
• UK introduced the Business Expansion Scheme to bridge the "equity-gap".
• EEC was formulating plans for technology support programmes.
• The US market for cellular radio services was worth less than US$200 million .

The SIHTMI Report estimated that, at that time, there were about 20-40 indigenous high tech manufacturing firms in Ireland employing between 400 and 800 people. High tech was defined as covering microelectronics, biotech, materials and speciality chemicals, specialised mechanical products and software.

The SIHTMI Report concluded that (despite hype at the time) a high tech sector didn't exist and would not develop without major changes. It indicated a need to create a national policy on high tech; to streamline state support to high tech firms; to pursue strategies based in identified niches; to establish centres of excellence and better HE/industry interaction; to encourage proven entrepreneurs and senior managers to locate to Ireland using tax breaks; to introduce tax incentives to encourage investment; and to improve the general infrastructure, environment and competitveness.

These recommendations, when compared with the Innovation Task Force's, shows just how much (or how little) progress has been made over almost three decades. Chris Horn, a well-known "tech champion" and member of the Innovation Taskforce, identified the following similarities between recommendations in the 1983 and 2010 reports:

• need for risk capital
• need to augment domestic entrepreneurs with attracting overseas ones
• shortage of international commercial skills
• need for more progressive procurement policies by the State
• need for oversight committee for the enterprise economy with public and private sector and Ministerial engagement
• co-ordinated focus around a single enterprise agency for delivery of support and aid
• grant aid for early stage ventures
• put "wood behind the arrow" in a few carefully selected market niches
• tax incentives to foster private risk capital
• aid, coaching, administrative support from large established companies to younger smaller ones.

This list begs the question as to why it takes so long (27+ years) to fully implement substantial but basic changes in industrial policy in Ireland.

Over the past few months, the Minister for Finance and NTMA have announced the membership of Nama's board and its senior management team.

Given that Nama is going to become one of the largest property managers in the world, it is very surprising that so many of these appointments have been drawn from the NTMA which has no prior experience or expertise in managing and running down a vast property portfolio. By way of confirmation, the former CE of NTMA told the Oireachtas Public Accounts Committee in May 2009 that "we have no experience of bank restructuring or the whole new area which is coming our way, and we will be on a very steep learning curve."

For the record, two of the eight members are from the NTMA and two of the four senior management appointments are from the NTMA. This means that one-third of the team leading Nama are NTMA insiders. Of the remainder, only one has extensive property experience, one works for a major multinational, two are former bankers, two are former public servants and two are accountants. Although an additional person with international financial and banking expertise will join the board in May 2010, this will not radically alter the team's range of expertise or experience.

Having previously commented on the need for Nama to have world-class management,  I would have expected to see more property, legal, banking and international expertise on a team managing a €80 billion loan/property portfolio. I would also have expected a somewhat larger board and executive team. This gives rise to a concern that Nama, by accident or design, may be under-resources at top levels and overly dependent on very expensive and footloose external advisers. 

The Government's convoluted, evasive plans for a banking inquiry are a bucket of whitewash and waste of time. They insult the electorate who will bear the cost of the crisis without ever seeing and hearing exactly why and how it happened.

We need is a new type of inquiry which is a mix of tribunal and commission and provides for membership by politicians and others. It should have subpoena/discovery powers, take evidence under oath, make findings, exclude lawyers, be open to public and televised, have an independent chairperson, engage expert support staff, hold private hearings by exception, have power to refer to ODCE/DPP/Gardai and so on.

Letter published in Sunday Business Post on 31st January 2010. For a more detailed discussion on these proposals, see Irish Banking Enquiry.

George Less is a person of enormous integrity who I admired greatly during his time with RTE. In truth, I was very disappointed when he joined Fine Gael as I felt that his RTE role was much more significant than any opportunity that might arise within the party and that he would be compromised by it and the Dail. However, his resignation fully restores my faith in him as a person of great integrity and ability and I hope that he will revert to a key reporting position at RTE.

Letter published in the Irish Times on 9th February 2010.

The Irish Government's convoluted, evasive plans for a banking inquiry are a bucket of whitewash and waste of time. They insult the electorate who will bear the cost (€40+ billion) of the crisis without ever seeing and hearing exactly why and how it happened.

We need is a new type of inquiry which is a mix of tribunal and commission and provides for membership by politicians and others. It should have subpoena and discovery powers, take evidence under oath, make findings, exclude lawyers, be open to public and televised, have an independent chairperson, engage expert support staff, hold private hearings by exception, have power to refer to ODCE/DPP/Gardai and so on. There are plenty of examples of this type of inquiry including the US's Financial Crisis Inquiry Commission which is examining a much more complex crisis than Ireland's and required to report by the year end.

A quick referendum would also facilitate other major inquiries in the future. It would make sense to delay the banking inquiry until the necessary changes could be introduced.

The Government needn't spend three months scoping its flawed approach to a banking inquiry. Instead, it should look at the terms of reference for the Financial Crisis Inquiry Commission. Most of them are relevant including role of regulator; monetary policy and availability of credit; accounting practices; tax incentives; capital requirements; credit rating; lending practices; concept of "too-big-to-fail"; corporate governance; compensation structures and levels; legal and regulatory structures; quality of due diligence; and fraud and abuse. To these, I'd add role of media and commentators; role of ministers and government departments; and relationships between politicians, developers and bankers.

Needed to say, a proper inquiry would not stop at September 2008 and should investigate the basis for the bank guarantees (relating to liabilities exceeding €400 billion), Nama (cost to taxpayer unknown but could exceed €10 billion), nationalisation of Anglo Irish Bank (€4 billion injected and another €6+ billion to follow) and provision of €7 billion in preference shares to Bank of Ireland and AIB (at a time when their combined market capitalisation was a fraction of this) with billions more to follow.

It is quite clear that the Government is doing its very best to frustrate the electorate's demand for an inquiry by doing as little as possible and working as slowly as possible. At the very least, the Opposition should withdraw all support for the proposed inquiry and undertake to set up a public inquiry when they win the next election.  

When a quarter of Iceland's electorate opposed the payment of €3.8 billion to the UK and Dutch governments arising from its banking crisis, its President refused to sign the relevant bill into law and the matter goes to the people in a referendum.

Meantime, our Government rams Nama down the electorate's throat and bails out banks and developers at a cost of at least €20 billion notwithstanding widespread opposition.

Whereas the Icelandic government resigns, our government clings to power in spite of having presided over the entire crisis.

While Iceland hires a high-powered, international investigator to help investigate possible criminal actions by bankers, our government dithers about even holding an enquiry.

Clearly, the Celtic Tiger has turned the Irish electorate into pussycats.

Letter published in the Irish Times on 15th January 2010.

Oft-quoted official statistics about income distributions and income tax are just plain wrong as they treat dual-income married couples as single tax payers, notwithstanding moves towards individualisation. This has the effect of completely ignoring about 400,000 earners and overstating the taxable incomes of their spouses by approximately one-third. Dual-income married couples are highly significant as their average income, based on published Revenue data, was €70,000 as compared with €27,000 for all other tax cases. They accounted for about 36% of all income and 41% of all income tax notwithstanding that they represented only 17% of tax cases.
 
If the incomes of dual-income married couples are divided in the ratio 65/35 then the overall distribution of incomes is radically altered. By my reckoning *, the number with gross incomes under €40,000 in 2008 would increase from 1.48 million tax cases to 2.25 million earners, a jump of 52%, and the number with gross incomes above €40,000 would decline from 0.89 million tax cases to 0.52 million earners. This redistribution has huge implications for plans to bring more low-paid earners into the tax net because they are earning substantially less than suggested by official figures, or for increasing the tax take from high earners who are less numerous than reported.

Letter published in the Sunday Business Post on 3rd January 2010. * See revenue_tax_cases.pdf.

Having sat on it for three months, the Government slipped out the latest report by the Review Body on Higher Remuneration in the Public Sector in the wake of the budget. Its approach was to compare Irish salaries with those in Germany, UK, Austria, Netherlands, Belgium and Finland.

It found that the Taoiseach's and ministers' salaries were the second highest and that salaries of Secretary Generals were the highest. Even after adjusting for pensions, tax and purchasing power, Irish salaries were still well ahead for most countries. In comparison with Finland (population 5.4 million), the Taoiseach's salary was 33% higher than his opposite number, ministers were 20% ahead and secretary generals were 52% higher. On this basis, Ireland's administration has a long way to go to become competitive and the cuts announced in the budget were merely a first step.

With the Dail in hibernation, ou highly-paid Government should note that the Finnish Parliament sits in non-election years for about 150 days a year as compared with just 90+ for the Dail.

Letter published in the Irish Times on 29th December 2009.

The Board of Nama has been announced but I'm uneasy about its breadth of expertise and experience for several reasons.

Firstly, too many locals (8 out of 9) are members and too many of these previously worked for the establishment (4 out of 8) raising the possibiliy of "board capture". Presumably, they were selected because they "understand" the Irish business culture and political agenda, as well as for their undoubted experience and expertise. I would like to have seen the board include "real outsiders" with direct experience of very large-scale asset management, well-known views on protecting taxpayers and track records of aggressively pursuing large-scale, delinquent loans. These would include some really tough, nasty lawyer-types who cut their teeth on Wall Street and would be more than a match for any of the "locals". Of course, appointments of this type could put the "cat amongst the pigeons" and this isn't what the Minister for Finance is seeking at board level given his role in shaping and running Nama.

Secondly, bearing in mind that Nama will be one of the largest property companies in the world, I would have thought that its board and management should also be world-class. Anything less is equivalent to sending a boy on a man's errant. Bear mind that the three most important factors determining the success of a venture are management, management and management. The equivalents for property are location, location and location - these factors were often ignored during the boom and contributed to the crisis which Nama seeks to address.

Thirdly, the proposed staffing of Nama is only a fraction of that used by the Swedish "bad" bank operation which dealt exclusively with nationalised banks (this may still happen in Ireland) and had a loan portfolio far smaller than Nama's. It appears that Nama's in-house staff of about 100 people will be managing a highly fragmented, complex portfolio worth €77 billion covering 20,000 loans linked to almost 2,000 developers' business plans. As a consequence, Nama will be over dependant on expensive external advisers and will be obliged to over-delegate back to the covered institutions. Such an approach is penny wise and pounds foolish and a clear recipe for cock ups.

Overall, I'd have liked to have seen more people with substantial, relevant, international experience at board level and clearer indications that the management team will be appropriate to the task. Bear in mind that Nama exists because of massive managerial failures at government, regulation, administration, banking and developer levels. We don't want Nama to repeat these errors due to insufficient experience or expertise.

The 2010 budget was extremely one sided as it excluded general tax increases for the high paid who retain existing after-tax incomes and additionally benefit from deflation. At the other end of the spectrum, social welfare recipients and lower-paid public sector workers are experiencing cuts on account of the same deflation.

Letter published in the Irish Times on 10th December 2009.

It is truly extraordinary that the Minister presented a budget detailing cuts of €4 billion but failed to state that he had recently gifted a similar amount to Anglo Irish Bank for absolutely no return and will probably flush a further €4-6 billion down its plug hole. This is on top of €7 billion provided to the main banks and possibly to be followed by billions more during 2010. Nor did he mention Nama's planned overpayment of €7+ billion for property loans and resultant €54 billion increase in national debt. Talk about ignoring elephants in the room.

Letter published in the Sunday Business Post on 20th December 2009.

Oft quoted statistics about income distributions and income tax are just plain wrong as they treat dual-income married couples as single tax payers notwithstanding an established trend towards tax individualisation. This has the effect of completely ignoring about 400,000 earners and overstating the taxable incomes of their spouses by approximately one-third.

Dual-income married couples are highly significant as their average income, based on Revenue data for 2005, was €70,000 as compared with €27,000 for all other tax cases. They accounted for about 36% of all income and 41% of all income tax notwithstanding that they represented only 17% of tax cases.
 
If the incomes of dual-income married couples are divided in the ratio 65/35 then the overall distribution of incomes is radically altered. By my reckoning, the number with gross incomes under €40,000 in 2008 would increase from 1.48 million tax cases to 2.25 million earners, a jump of 52%, and the number with gross incomes above €40,000 would decline from 0.89 million tax cases to 0.52 million earners.

This redistribution has huge implications for any proposals to bring more low-paid earners into the tax net because they are earning substantially less than suggested by official figures, or for increasing the tax take from high earners who are less numerous than reported in Revenue statistics.

My 11-page report with tables and charts can be downloaded at revenue_tax_cases.pdf  

Is it too much to expect people in public positions to answer questions truthfully without recourse to mental reservations, mature reflection or overnight consideration?

Letter to editor published in the Sunday Business Post on 6th December 2009.

This chart analyses the progressiveness of the Irish income tax system based on 2009 rates. It shows the effective and marginal tax rates (combining income tax, the health and income levies and PRSI) for taxable incomes from zero to €1 million in €10k jumps for 2009. The only credits taken into account related to marital status so the rates depicted at each income level are maximums. Note that the overall rates takes account of the mix of single and married income tax payers at each income step based on Revenue data for 2005 - this wouldn't have changed much since then.

Notable features include:

• the slope of the red line signifies the progressiveness of the tax system - very progressive up to about €60,000, moderately progressive up to €200,000 and much less progressive thereafter.
  
  
• the rapidity of the increase in overall effective rate from €20k up to €80k. The overall rate tapers off thereafter and effectively flatlines at about €500k.
  
  
• the erratic growth in the overall marginal rate at quite low incomes before it settles down at 52%. The saw tooth jumps are attributable to interactions between the different bands and rates. What the marginal rate graph does NOT show is the way in which marginal rates rise extremely rapidly for singles and one-income married.
  
  
• top marginal rates can be hit very early with a single earning €60,000 paying at 51% in contrast to a dual earning married couple earning €1 million and paying tax at 52%.
  
  
• the huge differences in effective tax rates for singles, married (one income) and married (dual income) particularly at low incomes.

This analysis takes no account of the fact that high earners, by virtue of having discretionary income, can reduce their effective tax rates very substantially by tax planning and availing of tax breaks with the result that people earning between €60,000 to €120,000 (my guesses) could be paying the highest "real" effective rates. I intend to discuss this issue in more detail in a future post.

We will update the chart late next week to take account of the budget for 2010 so bookmark us, subscribe to our RSS feed or follow us on Twitter.

By my reckoning, house builders and landowners made exceptional profits of about €37 billion over the ten years to 2006 as a consequence of inflated house prices. This excludes windfall profits for commercial property and those made by financial institutions, who lent far more than strictly necessary, and other beneficiaries such as brokers, insurance companies, solicitors and auctioneers. Although the Exchequer gained from additional stamp duty and VAT, it also provided tax breaks which were largely unneeded and merely boosted profits.

Having made huge gains and plunged hundreds of thousands of home owners into negative equity, surely it is only fair to look for some payback from the boom's main beneficiaries. Given that the country is confronting a deficit of €20 billion, what would be morally wrong with introducing a special tax to claw back these excessive profits instead of raising taxes, cutting public services and social welfare, and increasing exchequer borrowing?

Letter published in the Sunday Business Post on 29th November 2009.

Ireland's Nama (National Asset Management Agency) is not unique. It is also:

• An African ethnic group of South Africa, Namibia and Botswana.
• Means "baby names" in the Java language.
• Old English and Sanskrit for "name".
• A military camp in Baghdad, Iraq, standing for "Nasty Ass Military Area".
• Nama demissum is a genus of plants in the family Hydrophyllaceae.
• An adjective meaning raw (food) or draught (beer) in Japanese.
• A national language in Namibia.
• A hero in Altaic folklore who built an ark to save his family from a flood.
• A verb meaning "to be flexible" in Swahili.
• A wine used in Greek Orthodox Churches in Holy Communion.
• A common greeting or salutation in the Indian subcontinent.
• A collective name for the four mental groups in Buddhism.
• A pronoun in Croatian.
• Nama shoyu is a raw, organic, and unpasteurized soy sauce.
• The meditation, vocal singing of hymns from the sacred scriptures of the Sikhs.
• Shah nama is an epic poem written by Firdawsi which recounts the early history of Persia.

And the world is full of Namas! Here is a (partial) list of other organisations that use Nama as an acronym:

1. Nashville American Marketing Association
2. National Academy of Modern Accountants
3. National Agri-Marketing Association
4. National Air-Monitoring Audit
5. National Alliance for Medication Assisted Recovery
6. National Alliance of Methadone Advocates
7. National Anger Management Association
8. National Association of Mapua Alumni
9. National Association of Master Appraisers
10. National Association of Mathematics Advisers
11. National Automatic Merchandising Association
12. National Automatic Merchants Association
13. National Ayurvedic Medical Association
14. National Mall, Washington
15. National Merit Awards - Zimbabwe
16. Nationally Appropriate Mitigation Action - Bali Action Plan
17. Native American Music Awards
18. New Amsterdam Musical Association
19. Newsletter and Magazine for Alumni - Aga Khan University
20. Nigerian Airspace Management Agency
21. Nigerian Automotive Media Awards
22. Node Activation Multiple Access
23. Non-Agricultural Market Access - WTO
24. North American Mailing Associates
25. North American Manipur Association
26. North American Manx Association
27. North American Metabolic Academy
28. North American MICR Association
29. North American Millers' Association
30. North American Mobile Association
31. North American Modeling Association
32. North American Mushroom Association
33. North American Mycological Association
34. Northalsted Area Merchants Association
35. Northwest Airlines Meteorologist Association
36. Northwest Arkansas Music Awards
37. Northwest Atlantic Marine Alliance

According to Nama's plan, budgeted interest income for 2010-12 will total €9.5 billion but its cashflow projections only show interest income of €4.5 billion for this period. Presumably, the difference of €5 billion is rolled up. I reckon that rolled up interest could total €10.9 billion over the ten years to 2020. If this is included in the €62 billion of principal repaid by borrowers then the "real" default rate on loans would be 34% rather than 20% indicated in the plan. This would transform Nama's projected surplus into a trading deficit of at least €5 billion and signify that the bank/building crisis is far more serious than implied by Nama's plan.

Given that Nama will be taking over loans amounting to almost half of Ireland's GDP, its business plan should, at a minimum, have included "scenario-based" P&L statements and balance sheet projections as well as cashflow forecasts for the ten years. These would have given a fuller picture and facilitated analyses which might have helped anticipate problems identical to those being experienced by the banks that Nama is seeking to rescue.

Letter to the Editor published in the Sunday Business Post on 22nd November 2009.

The seemingly innocuous decision of Anglo Irish Bank to change its year-end from September to December, presumably with the approval of the Minister for Finance and "public interest" board members, is a striking example of the Government's opaqueness and Machiavellian approach to the banking crisis and Nama. This date change means that the State-owned bank can hide the full extent of its problems until 2011.

Meantime, the Government has gifted almost €4 billion of taxpayers' money to the bank for absolutely no return and will probably need to flush a further €4-6 billion down its plug hole. This is additional to the estimated €28.4 billion of loans to be transferred to Nama. The State is knowingly paying over the odds for the privilege of handling these loans to the extent of, maybe, €3-6 billion.

On this basis, Anglo is going to cost the Irish taxpayer anything between €8 and €16 billion. This means that up to 15 months of all income tax collected in the State could be used to pay for the reckless behaviour of Anglo's management and some of its clients.

Nama's draft business plan projects a profit of €5.5 billion by 2020 even after overpaying €7 billion for loans and incurring expenses of €2.6 billion. Surely, this forecast undermines the need for Nama. In truth, the plan's projections are undoubtedly "very best case" and other scenarios should have been published using lower repayments and interest income, higher defaults etc. These scenarios would explain why the banks are so enthusiastic about passing all their property loans to Nama.

Letter published in the Sunday Business Post on 1st November 2009.

What is the point of the Dail debating the Nama Bill before Nama has undertaken basic research on its prospective loan portfolio and finalised its business plan and strategies? If Nama's draft plan was used to seek €54,000 from investors, it would be rejected out of hand as an extremely poor document. Given that Nama needs to effectively raise an amount which is a million times larger i.e €54,000,000,000, surely no taxpayers' money should be provided until its plan has been fully researched and approved by the Dail. Only at that point would it be appropriate to resume consideration of the Nama Bill. Thoughts of horses, carts and stable doors come to mind.

Letter published in the Sunday Business Post on 8th November 2009.

Our general criticisms of Nama's draft business plan are presented in Nama - A Flawed Business Plan.

This posting raises basic questions and concerns about the plan's underlying default rate and treatment of rolled up interest. These could have huge implications for the plan's credibility; the likely depth and duration of the banking/building crisis; and the cost of Nama to taxpayers.

In summary, detailed analysis of Nama's cashflow projections suggests that the "real" default rate is either an unrealistically low 6% or a catastrophically high 34% depending on the treatment of rolled up interest arising over the ten years to 2020. This compares with a 20% rate quoted in Nama's plan.

Instead of debating the Nama Bill, the Dail and Seanad should undertake a more indepth review of Nama's business plan. Bottom line: no taxpayers' money or support should be forthcoming until its plan has been fully researched and presented in final form for approval.

Our detailed assessment is presented in the five sections below. They review Nama's projections, highlight concerns, pose questions, explain implications and present general conclusions. 

Nama's draft business plan is merely a work in progress and no taxpayers' money should be invested until the plan has been fully researched, presented in final form and approved by the Dail.

If the plan was used to seek €54,000 from investors, it would be rejected as an extremely poor document. Given that it is being used to raise a million times more, no taxpayers' money should be invested until the plan has been fully researched, presented in final form and approved by the Dail.

As developer of financial projection software with a user base in over a hundred countries, I'd like to comment on Nama's 10-year projections as follows:

1. The discount rate used to convert future cashflows to present-day values is 5 percent. This corresponds to the current rate, presumably risk-free, for Government bonds. If a more realistic rate of, say, 15 percent is used to partly counter the plan's rosy assumptions, the projected net cash value drops from €4.8 billion to €3.7 billion for the ten years.
   
   
2. Every business plan, especially one involving an investment of €54 billion of taxpayers' money, should include projected P&L statements and balance sheets as well as cashflow forecasts for each year. This would present the full picture and facilitate ratio analyses which might help anticipate problems similar to those experienced by very same banks that Nama is trying to rescue.
   
   
3. Given the huge uncertainties, projections for less favourable scenarios, based on the plan's own risk assessments, should have been published. These would facilitate the development of defensible strategies and mini-max assessments (to minimise the maximum regret that might be anticipated once the final outcome is known) as well as Monte Carlo simulations to take account of the compounding effect of risk. 
   
   
4. The projections assume modest principal repayments during the initial three years and a surge in repayments during the final seven years. If over half of all borrowers cannot pay any interest during the initial years, what are the chances that property markets will recover sufficiently to facilitate repayment of loans as well as rolled up interest in later years?
   
   
5. The plan forecasts a profit of €5.5 billion by 2020. Surely, this forecast undermines the need for Nama and begs the question as to why the banks' shareholders are not lining up to get a share of the action. In truth, the plan's projections are "very best case" and other scenarios should be published based on lower repayments and interest income, higher defaults, higher debt interest and expenses and a higher discount rate. These would be more realistic and explain why the banks are enthusiastic about Nama.
   
   
6. After market risk, the greatest challenge facing Nama relates to management. To succeed, its resources and expertise must be appropriate to one of the largest property portfolios in the world. This means experience of world-scale asset recovery and portfolio management with minimal reliance on inexperienced local secondments, expensive advisers and delegation of nothing but basic administrative activities back to covered institutions. According to its plan, Nama's inhouse staff of under a hundred people people will be managing a highly fragmented, complex portfolio worth €77 billion covering 20,500 loans linked to almost 2,000 developers' business plans.
   
   
7. The business plan explores six alternative scenarios. Only one of these is linked to Nama's operational performance and the trading environment and indicates that Nama would only break even if a default rate of 31% is used. The other five relate to interest rate trends and indicate that the impacts will be either negligible or highly unlikely. Extraordinarily, no attempt was made to assess the impact of any of the eight risk factors detailed in the business plan.
   
   
8. The plan contains no assessments of likely economic conditions over the next ten years to provide a basis for its projections regarding loan defaults and repayments. Notwithstanding this, the Government has already decided that the long-term outlook justifies paying €7 billion more than the market value of the properties linked to the loans to be repaid over the next decade.
   
   
9. The plan makes no reference whatsoever to the creation and role of Special Purpose Vehicles (SPV) which will be majority private-owned and play a pivital role in the execution of Nama's plans. Does Nama's right hand know what the left one is doing?

Instead of discussing the Nama Bill, the Dail should undertake an indepth review of Nama's business plan. 

Nama's business plan was published last night. It is of particular interest as my business specialises in business planning and financial projections. Having seen hundreds of plans and projections, I have learnt to take most projections looking beyond 2-3 years with a pinch of salt.

Nama's plan projects a profit of €5.5 billion by 2020 even after overpaying €7 billion for loans and incurring expenses of €2.6 billion. This is absolutely incredible and laughable if it was not so serious.

Surely, these glowing projections undermine the need for Nama and beg the question as to why the banks' shareholders are not lining up to get a share of the action. In truth, the plan's projections are "best case" and, as a specialist in business planning, I'd advocate a much more conservative set of numbers with lower repayments and interest income, higher defaults, higher debt interest and expenses and a higher discount rate. This scenario would be much more realistic and would explain why the banks are so enthusiastic about Nama.

Having originated the Double/Double/Half Rule (double time, double costs and half revenues), I'll like to see it applied to the Nama projections.

More seriously, an independent review of the plan's projections is essential before any further steps are taken. I'd love to see Justice Clarke of the High Court review the plan in the light of his devastating assessment of the financial projections accompanying the Zoe Group companies' application for examinership.

The current outrage about politicians' expenses is well justified and must lead to a complete reform incorporating a vouched system and lower expense rates (e.g. for attending the Dail). The message to politicians is that they should stop arguing, fix it and then move on as there are much bigger fish to fry.

Preoccupation with politicians' expenses and the million euro payment to a former FAS executive should be contrasted with the proposed payment by Nama to the banks. This is 54,000 times greater.

To put this in context, a million euro of €10 notes laid end-to-end would stretch from O'Connell Street to Howth whereas the Nama payment could be wrapped 17 times around the earth at its widest point. Given the magnitude of Nama and the limited information available (we know much more about the Ceann Comhairle's expenses), surely the Dail should spend more time discussing the principles of Nama rather than the minutiae of the bill. An expert-supported, forensic examination of Nama and its proposed pricing methods might help close the stable door before, rather than after, Nama bolts.

Also, compare the FAS furore with the deafening silence and absence of sanctions surrounding current and former ministers, bank directors and senior banking, public sector and regulatory executives for leading the entire economy to the edge of a precipice and then demanding that everyone else pays for their incompetence.

The Government should introduce a measure for Ireland similar to the Lisbon Treaty's Citizens' Initiative whereby at least a million EU citizens from several member States could request the EU Commission to bring forward proposals on a particular issue.

Based on the Lisbon model, about ten thousand Irish citizens from, say, six counties could oblige the Cabinet or Dail to consider an issue, or the Government to hold a referendum. Apparently, such a proposal was included in a draft of the 1922 Constitution of the Free State. Citizens' initiatives operate in Switzerland, New Zealand, Estonia and the US. A measure along these lines might help bridge the yawning gap between our politicians and the electorate.

Letter published in the Irish Times on 6th October 2009.

The following message about Nama was sent on 4th October to all TDs and Senators as a follow up to that sent on 28th August. Several recipients pledged to raise the suggestions in the Dail or at the Committee stage of the Nama Bill. Whether any of them make it into law remains to be seen.

On 28th August, I wrote to you signifying my deep concerns about Nama. In the event that Nama proceeds in its present form, I wish to offer the following suggestions to help enhance public trust and improve its effectiveness:

1. Whistleblowers' Charter

The Nama Bill covers corruption, acting in bad faith, conflicts of interest, lobbying as well as failures to comply with obligations. It also provides for extensive reports, audits and accountability. Provision should also be made for a whistleblowers' charter to cover staff within Nama, covered institutions, debtors, advisers and service providers so as to help ensure that these parties all operate to the highest professional and ethical standards.

2. Reporting on Policy Matters

As the incumbent Minister for Finance will effectively control a €90 billion property empire and as several individuals of different political hues could fill this role over the life of Nama, robust checks and balances are essential to ensure that these ministers cannot use Nama in any manner at variance with its original purpose. To see how easily this can happen, consider Nama's sister body, the National Pension Reserve Fund which was set up to develop an international investment portfolio over a twenty-year horizon. Eureka, at the Minister's direction it now holds €7 billion of Irish bank shares amounting to a third of its total assets. Sections in the Nama Bill preclude its Chairman and CE from discussing policy matters with Oireachtas Committees. As things stand, these committees could be prevented from raising major issues, such as pricing of asset sales, on the grounds that these are policy matters. These sections should be removed and senior management should have unrestricted access to Oireachtas Committees.

3. Management Resources

After market risk, the key variable determining the success of a venture is usually managerial risk. In Nama's case, the former will be addressed largely by the size of the so-called haircut. To address the latter, Nama's senior management team must have extensive direct experience of world-scale asset recovery and portfolio management. Reliance on local secondments, expensive advisers and delegation of anything but basic administrative activities back to covered institutions should be minimised. The proposed staffing of Nama is only a fraction of that used by the Swedish "bad" bank operation which dealt exclusively with nationalised banks and had a loan portfolio far smaller than Nama's. It appears that Nama's inhouse staff of under a hundred people people will be managing a highly fragmented, complex portfolio worth €77 billion and covering 20,500 loans linked to almost 2,000 developers' business plans. Such an approach is penny wise and pounds foolish and is equivalent to sending a boy on a man's errant. Accordingly, the management resources and expertise within Nama must be appropriate to managing one of the largest property portfolios in the world even if this entails much higher operating costs than envisaged to date.

Thank you for reading this. I would welcome feedback or comments but please don't simply reply with a canned response or by enclosing any more general policy documents about Nama.

Supplementary documentation published by the Department of Finance alongside the Nama Bill about property yields contains some extraordinary statements (starting on page 10):

• It indicates that property yields (rents as percentage of prices) are higher in Dublin (7.25 percent) than in other major European cities and that Dublin's yield is well above its 20-year average of 5.6 percent.
  
  
• It then states that as "yields move towards their long term average this would indicate an increase in property prices". To re-enforce this view, it expects the exceptionally large difference between property yields in Ireland and key euro interest rates to narrow as a result of rising interest rates or rising property prices!!!
  

Whilst acknowledging that property prices have fallen by almost 50% in the past few years, the document completely ignores the possibility that the exceptional yields may be anticipating a sharp decline in rents. It not so long ago that the Irish banks offered unprecedented double-figure dividend yields before they were obliged to suspend dividends and their shares collapsed.

Furthermore, the Government could be accused of conspiring with Nama by not implementing legislation to permit downward rent reviews for commercial leases, as has happened already in the residential sector. This has the effect of artificially underpinning high property yields and thereby supporting property prices for the benefit of Nama, the banks and their developer friends. 

Hopefully, the European Commission is taking note of the Government's and Nama's approach to property valuation and their use of taxpayers' hands to catch falling knives.

Four questions about Nama:

1. Why is the onus on Irish taxpayers to recapitalise the main banks via Nama? These banks could raise substantial capital by selling off non-core investment and insurance activities and holdings in banks in the UK, Poland and the US. 
   
   
2. Why is the Minister preoccupied with the capital requirements of the banks when determining the haircut on loans being transferred to Nama? Surely, this amounts to match-fixing with taxpayers on the losing team.
   
   
3. Will the Minister accept that property values could continue falling for the next few years and might not rise for several years thereafter? This would be a consequence of the overhang created by Nama's portfolio, rising interest rates and ultra-conservative bank lending.
   
   
4. Why doesn't the Government direct the banks to grant share options to mortgage holders experiencing negative equity? This would help compensate them for the failures by the Government, Regulator and banks to exercise judgement and prudential control during the boom which they provoked.

Lead letter published in the Irish Times on 17th September 2009.

A shorter letter from the Ceann Comhairle to the electorate incorporating the words "sorry" and "resign" would have been more appropriate.

Letter published in the Irish Times on 16th September 2009.

The 1911 Census required householders to state the number of front-facing windows in their dwellings.

Instead of asking householders to value their houses in a very uncertain market, the proposed property tax could be based on a windows count.

How about a tax of €100 per front-facing window or one-third of total windows which ever is the greater? It would be very easy for Revenue to check this and evasion by bricking up windows should be evident.

A window tax was used in the UK and France in the 19th century as an alternative to income tax and gave rise to the phrase "daylight robbery".

Letter published in Irish Times on 9th September 2009.

The property market is in the doghouse simply because, as dogs on the street know, prices have to fall considerably further to make long-term economic sense based on yields and prospective interest rate increases.

Clearly the Government is not listening as it strives to ensure that Nama will be able to exploit its dominant market position to keep prices artificially high for the benefit of bank shareholders, bondholders and developers. Surely this amounts to price rigging and State subsidisation and is contrary the public interest.

The following message was sent to all TDs and Senators on 28th August 2009. It was acknowledged by about forty recipents who mainly supplied canned responses with attachments about party policies.

I'm very concerned about the Government's approach to resolving the banking crisis and wish to make the following points to you as a public representative in the hope that you can influence or lobby the Government:

1. As the economy moves through an unprecedented recession, all possible measure should taken to ensure that credit is readily available for viable projects and credit-worthy borrowers. It is impossible to see how this can be done by a lame-duck banking system which is being pulled in several directions - to lend more, protect shareholder value, ration credit to improve ratios, hoard resources to cover bad debts, and make guarantee and recapitalisation payments to the state. 
   
   
2. While the Minister for Finance views bank nationalisation as the "last resort", he must also appreciate that the main banks continue to operate thanks to the State's guarantees for €400 billion, its €7 billion preference share investment, its plan to purchase €90 billion of their loans and, if needs be, to take equity stakes.
   
   
3. Nama is a huge gamble which exposes taxpayers to a multi-billion euro hit if prices paid for the loans prove to be too high. In these circumstances, the banks would emerge unscathed and their shareholders would make massive gains as the economy recovers. If you think that this couldn't happen, recall that an insurance levy paid for many years to bail out AIB after its ill-fated takeover of ICI. Note: This was incorrect - the levy related to the failure of PMPA.
   
   
4. As the Government has a responsibility to protect the banking system and taxpayers ahead of banking institutions or bankers, it is very hard to understand why it doesn't simply "bite the bullet" and temporarily nationalise the main banks as a central element of Nama's rescue mission. Given that it holds the whip hand, the Government could cut deals with bank stakeholders to ensure that gains and pains are shared more fairly.

Thank you for reading this.

Based on the draft Nama legislation, the Minister for Finance will effectively control a €90 billion property empire and, given Nama's expected life span, several individuals of different political hues could fill this position over the next decade.

This raises concerns about the robustness of checks and balances to ensure that these ministers don't use Nama for pet projects at variance with its original purpose. Couldn't happen?

Just look at Nama's sister body, the National Pension Reserve Fund which was set up to develop a high-grade, international investment portfolio over a twenty-year horizon. Suddenly, at the direction of the Minister for Finance, it has been stuffed with €7 billion of Irish bank shares amounting to a third of its total assets.

Any requirement that finance ministers account for Nama to the Oireachtas offers absolutely no solace based on that body's track record. Instead, the legislation must include overarching controls to ensure that Nama cannot become a ministerial sweet shop offering goodies like bail-outs, tax-breaks, benchmarking and decentalisation.

Why is the Government proposing to use Nama to prevent a decline in property prices at a time when Ireland has the second highest cost of living in the EU?

Surely, it should be encouraging lower prices as these would result in cheaper houses, lower shop prices and more competitive commercial and industrial rents. Instead, taxpayers are expected to underwrite a multi-billion punt on Nama to ensure that property prices don't fall and that the country remains uncompetitive.

Lead letter published in the Irish Times on 26th August 2009.

The CSO's recent review of economic and social progress for 2008 incorporates EU-wide comparisons based on GDP (Gross Domestic Product) and GNI (Gross National Income). For Ireland, these measures differ by about 14 percent. In many situations, the lower GNI is the most appropriate measure of Ireland's output as it excludes the huge profits generated by multinationals. However, comparative studies by the EU, OECD, IMF etc. are based on GDPs which for many countries are very close to their GNI values. Consequently, their findings over- or understate Ireland's true performance as illustrated by the following examples derived from the CSO's review and covering the 27 EU states:

• Ireland ranked second place in terms of purchasing power per person based on GDP but fell to fifth place based on GNI.
• For capital investment, Ireland jumped from 16th place based on GDP to a much more favourable 8th position based on GNI.
• Social protection expenditure based on GDP placed Ireland in 20th place. This improved to 15th based on GNI.
• For public expenditure on education, Ireland ranked 15th based on GDP but rose to a commendable 7th place for GNI.
• Ireland's ranking for public health expenditure jumped from 17th place when related to GDP to an above-average 11th place for GNI.

Surely, domestic and international studies should assess Ireland's performance based on GNI as well as GDP, even if only in footnotes. For example, the projected exchequer deficit for 2009 is 10.8 percent of GDP and extraordinarily high by international standards. If based on GNI, it rises to 12.7 percent and points to an even more serious position.

Letter published in the Sunday Business Post on 13th September 2009. The five examples were edited out for space reasons. 

Calls for a review of the minimum wage should be placed in context.

According to the 2007 National Employment Survey 14 percent of all employees in the State had hourly earnings below €10 while a similar percentage had earnings above €40 per hour.

When account is taken of hours worked, employees earning less than €250 a week account for only 4 percent of the national wage bill as compared with a 13.5 percent share for those earning over €1,500 a week. A ten percent reduction in wages for all 233,000 employees earning less than €250 a week would reduce the national payroll by 0.4 percent whereas a similar reduction for the 233,000 highest paid employees would reduce the national payroll by eight times as much.

For maximum impact, any campaign to improve national wage competitiveness should start with high-paid employees, directors and self-employed rather than the lowest paid. To show leadership, our politicians should take substantial reductions in salaries which, even after minor tweaking, are still amongst the highest in the world.

Letter published in the Sunday Business Post on 16th August 2009. 

In discussing the need for strong oversight of Nama, Noel Whelan (1st August) mentioned that the draft legislation provides for a special Oireachtas committee to oversee Nama in addition to the Public Accounts Committee.

I wonder how effective these committees will be given that the draft legislation contains clauses (50 and 51) which preclude the Chief Executive Officer and the Chairperson of the board of Nama from (a) questioning or expressing an opinion on the merits of any policy of the Government or a Minister or on the merits of the objectives of such a policy or (b) producing a specified document in which the Chief Executive Officer or the Chairperson questions or expresses an opinion on the merits of any such policy or such objectives.

Surely, these "gagging clauses" will preclude key officials from speaking openly on fundamental issues and effectively nobble comprehensive scrutiny of Nama.

Letter published in Irish Times on 4th August 2009.

The Minister for Finance told the Dail on Wednesday last that the unemployment rate will hit 15.5 percent next year. This compares with 11.4 per cent last month and just 5.4 percent for April 2008. Unemployment is expected to reach 366,000 during 2010. This is almost 60% higher than the highest level encountered during the dark eighties - it can be no consolation to the unemployed that the labour force has increased substantially in the interval.

If public sector employment remains steady at 360,000 then private sector will continue to bear the brunt of unemployment. This will bring the sector's unemployment rate to almost 19% notwithstanding across-the-board wage freezes and reductions, impaired pensions and substantial rationalisation.

It begs the question as to why, in this unprecedented crisis, the public sector continues to enjoy a substantial like-for-like wage premium, excellent pension arrangements (notwithstanding the recent levy) and near absolute job security. Surely, it is time for the entire public sector to engage, without preconditions, in a major programme of reform and productivity improvement to align itself more closely with the private sector.

For its part, the Government and opposition should set aside their petty party differences and lead an immediate action plan to contain unemployment, reduce public expenditure, unblock the banking system, protect the least well-off and restore medium-term confidence and competitiveness.

In parallel, the social partners parties must get off their ideological high horses; accept that a substantial across-the-board decline in living standards is inevitable; and start working with the Government to ensure that the major surgery needed to restore the economy's health is executed as fairly as possible. The quicker this is done the sooner the recovery can start.

This Government is quite clever in the way that it periodically creates smoke screens to distract from underlying issues. The latest example is reshuffling junior ministers to hide gross excesses in the remuneration and expenses of politicians. Clearly, the Government has used a feather duster instead of a chain saw notwithstanding that it promised in the last budget to "lead by example".

Of course, this is not surprising given that, apart from a few sacrificial lambs, none of the hundred or so individuals in the public and private sectors who led the economy over a cliff have suffered meaningful sanctions or even offered unqualified apologies.

All the signs are that the economy will decline by about 14% between mid-2008 and 2010 and that only about one-third of this decline may have already occurred. This is confirmed by the expectation that the tax increases announced in April will have to be repeated, in one form or another, in budgets for 2010 and 2011.

On this basis the worst has yet to come. The Government's most recent initiative has been to scuffle a few meaningless jobs instead of showing real leadership to drive through root-and-branch changes to reduce public expenditure, sort out the banking system and restore medium-term confidence and competitiveness. When those fortunates with jobs see the impact of higher levies on their pay slips at end May, they will be in no mood to tolerate a Government that pussy foots around the excesses of the Celtic tiger and fails to "lead by example".

A rout of the governing parties in the local and European elections could easily provoke a crisis of confidence within the Dail and lead, for better or worse, to an early general election. This time around, the electorate should ensure that it votes for a government that leads from the front and is both firm and fair.

Mr X (April 16th) is shocked that so many innumerates are advocating nationalisation of the banks. The real innumerates are the bankers and policy makers who ignored long-term trends. The Government's approach to the banking system is the financial equivalent of half-pregnancy as it involve nationalisation of bad loans and continuing privatisation of good loans. Even at this late stage, it should go the whole hog and nationalise the main banks. Reasons for not doing so, such as the need for transparency, coming from a totally opaque Government are pure hogwash.

Nationalisation would remove uncertainty, simplify matters, restore confidence and ensure that state funding is used to boost the economy rather than bale out bank shareholders. It would be much less risky as it would eliminate the need to price impossible-to-value impaired loans. These could cost taxpayers tens of billions if transferred at the wrong price to Nama in addition to billions of interest payable on bonds used to purchase the dodgy loans at the outset. The idea of applying a levy on the banks to offset any shortfalls is more hogwash as it will be simply passed on to customers.

Published in the Irish Times on 18th April 2009.

It is self evident that as the economy lurches into an ever deepening recession, every possible measure should taken to ensure that credit is readily available for viable projects and credit-worthy borrowers. It is just as evident that this cannot be done by a lame-duck banking system which is being pulled in several directions - to lend more, protect shareholder value, ration credit to improve ratios, hoard resources to cover future bad debts, and make guarantee and recapitalisation payments to the state. More ...

Your editorial (16th March) about Oireachtas reform stated that the question is not whether there should be cuts, but how deep cuts should go.

For starters, the Minister of Finance should announce an immediate reduction of about one-third in the salaries, pensions and other perks enjoyed by politicians and across the upper reaches of the public service. This might seem Draconian, but it would only deflate a big bubble and bring things into line with other comparable countries with which Ireland is expected to compete.

If the Government makes such an announcement on or before budget day, it will send the clearest possible signal to the electorate and international observers that it understands the seriousness of the situation and is leading by example.

If it fails to do so, there is every chance that it will not secure the electorate's support for the budget measures. In these circumstances, it is possible that even more painful medicine will be imposed unilaterally by the ECB or IMF as a precondition of a financial bailout.

Letter published in Irish Times on 23rd March 2009.

Last year the Minister for Finance advanced the 2009 budget by three months as the Government's main response to the emerging economic crisis. He indicated in his budget speech that the economy would decline by less than one per cent and unemployment would average 7.3 per cent in 2009.

If these figures justified an early budget, surely the expected 6+ per cent decline in the economy for 2009 and an actual unemployment rate of 7.7 per cent for last December justify immediate budgetary action rather than a fifteen month gap to the next budget.

Much play has been made by the Government that top earners pay the most tax and that huge numbers don't pay any tax. According to Revenue's Statistical Report for 2007, 661,000 tax cases had gross incomes of less than €15,000 a year and, as might be expected, paid minimal taxes totalling €14 million on gross incomes of €4,744 million.

If, ignoring the social consequences, their effective tax rate of 0.3% could be increased by 10% to 10.3%, an additional €474 million would be raised. At the other end of the spectrum, 81,000 people had gross incomes in excess of €100,000 a year and paid taxes totalling €4,353 million on gross incomes of €16,065 million. If their effective tax rate of 27% increased by the same 10% to 37%, a total of €1,606 million could be raised.

Surely, it is unnecessary to wait for the Commission on Taxation's report to see that, in this time of crisis, tax rates should be increased as soon as possible for those with the highest after-tax incomes.

Letter published in the Irish Times on 4th March 2009.

Last Monday, the Irish Times contained full-page advertisements from AIB and ICTU. The contrast between the two could not be greater.

The former comprised patronising guff about commitment (mentioned five times) which was undoubtedly generated by an advertising agency. The ICTU contribution was a measured document which addressed many of the problems confronting the state. Although far from perfect, it was close to being the type of comprehensive plan that the Government should have produced months ago.

The bank's advert stated that it is regulated by the Financial Regulator. Thankfully, the ICTU advert contained no such statement.

Letter published in the Irish Times on 20th February 2009.

There are clear signs that the proposed recapitalisation of the main banks will prove inadequate and that further support will be required from the Government in line with its minimalist "drip drip" strategy.

To protect the economy and banking system as distinct from banks and bankers, the Government should change tack before being forced to do so and withdraw their proposal in favour of the following variation on the "bad" bank approach. This would buy time and ensure that state funding is used exclusively for productive purposes. In addition, it would be less risky and costly for the taxpayer, eliminate the need for bad debt insurance, and remove pressures on the banks to withhold credit or hoard resources to cover future bad debts.

Here are some suggestions:

1. AIB and Bank of Ireland (combined market value of €0.86 billion) should be nationalised and their existing shareholders compensated mainly by options to acquire substantial new equity stakes when the two banks are eventually re-privatised.
   
   
2. Each nationalised bank should be divided into good and bad banks with new boards and senior management teams working exclusively in the public interest and insulated from political interference. The good banks should receive capital injections from the state to improve liquidity and operate using existing staff, premises etc. These banks could be very profitable as all their problematic loans would have been shunted into their bad banks.
   
   
3. The two bad banks should undertake no new business and, having secured minimal working capital from the state, would effectively operate as high-powered debt collectors. They would pursue borrowers for repayments and where necessary call in securities and, rather than engage in fire sales, accumulate such assets for sale once economic growth resumes. Repayments should be passed back to good banks to further enhance liquidity.
   
   
4. Once the crisis has passed, the final deficits attributable to the bad banks will be clear. These should be absorbed by the good banks which could then be refloated on the stock market to repay the state, grant equity to option holders and raise new capital.
   

The following proposals are aimed at those in leadership positions and the higher paid. While small in number, they are hugely important for setting example, restoring fairness to the tax system and contributing to the national finances and competitiveness.

1. Salaries, pensions and expenses of ministers, TDs and senators should be reduced by, at least, one-third and instead of being pegged to overblown civil service scales, their salaries should be linked to those of politicians in other states of comparable size and status, and having similar parliamentary sitting days.
   
   
2. Salary scales of senior administers and professionals across the public sector should also be benchmarked against opposite numbers in other comparable countries and linked to the average industrial wage. In the interests of fairness, the proposed pension levy should be restructured as was done for the income levy.
   
   
3. As applies in the US, exceptional salaries in the private sector should be funded by shareholders rather than subsidised by taxpayers. Accordingly, any elements of total salary, bonus and pension contribution exceeding €200,000 should cease to be deductable for corporation tax purposes.
   
   
4. The conditions applicable to non-residency for tax purposes should be reviewed so that non-residency means exactly what it says or tax exiles pay up like every other citizen. For starters, tax should be changed on worldwide incomes of tax exiles pro-rate to days (or part of) spent in the state.
   
   
5. Having been introduced to encourage greater participation in the work force, tax individualisation should be phased out to help distribute scarce jobs across more households. Dual-income households with high mortgages that voluntarily become single-income should get special tax credits or be able to extend the term of their mortgages.
   
   
6. A new tax rate of 48% should be applied to the 60,000 tax payers with incomes above €100,000 a year. The annual yield would be about €800 million, and could be higher if allowances for "top-hat" pensions, investments etc. are reduced. If applied immediately for the next five years, these changes could cover about a quarter of the projected €16 billion shortfall.

Letter published in the Irish Times on 10th February 2009.

Nothing illustrates the Government's weak-kneed approach to the crisis more clearly than the fact that on the same day that President Obama demanded that US companies receiving bailouts should limit executive salaries to US$500,000, our Taoiseach who earns more than President Obama merely urged top executives in banks covered by tax payers' guarantees to take 25 per cent salary cuts. Arguably, a maximum salary of about €200,000 would be appropriate for Irish bank executives when account is taken of their size relative to their US counterparts

The Minister for Finance has stated that the €5.5 billion package for the banks is a good deal for the taxpayer. In reality, the return to the Exchequer is derisory given the risks involved, the cost of borrowing the funds for the package, and the fact that the proposed preference shares are neither convertible nor cumulative and have no priority over ordinary shares in the event of a liquidation.

In addition, the government has agreed to act as funder of last resort for the two main banks if their private fund-raising is unsuccessful and, most extraordinarily, it has offered Anglo Irish a blank cheque by agreeing "to make further capital available if required so that it remains a sound and viable institution". If this bank is sound and viable why does it need €1.5 billion of State funding and why is its share price sinking like a stone and valuing the entire bank at a mere fraction of this support?

All this largess comes on top of several hundred billion of guarantees which have increased interest costs for the state's own funding needs.

Surely, it is completely unacceptable for the very same people - ministers and bankers - who created the crisis to also negotiate the solution using "our" money. Where are the sanctions to ensure that their reckless behaviour is not repeated and why should the taxpayer shoulder all the risk and none of the rewards?

 Letter published in the Irish Times on 29th December 2008.

Given that the state is committing €5.5 billion to the banks using borrowed money sourced via the National Pension Reserve Fund, the net return to the Exchequer is really only two-thirds the proposed divided payments. The Minister for Finance has stated that the deal is a good one for the taxpayer. In reality, the return is derisory given the risks involved and the fact that the shares are neither convertible nor cumulative and have no priority over ordinary shares in the event of a liquidation.

In addition, the government has agreed to act as the funder of last resort for the two main banks in the event that their private fund raising is unsuccessful and, most extraordinarily, it has offered Anglo a blank cheque "to make further capital available if required so that it remains a sound and viable institution". This begs the question as to why it needs €1.5 billion from the taxpayer if it is already sound and viable. All this largess comes on top of several hundred billion of guarantees which have already increased interest costs for the state's own funding needs.

Notwithstanding the offer of billions which the Exchequer can ill afford, the combined market value of the three banks has sunk by a half billion over the past week. This speaks volumes and suggests that another, even larger, funding round will be required next year as the economic decline accelerates, unemployment rises and property prices tank.

As further preference shares will no longer be an option, the government will be forced to do then what it should have done at the outset, namely, nationalise the banks, reform them into three distinctive banking entities with new balance sheets and management and then refloat them on the stock market to raise further capital and ensure that taxpayers benefit from the upturn.

The blame for the domestic banking crisis can be laid squarely at the foot of the Government, Financial Regulator, Central Bank, bank directors and some property developers.

Where is the "moral hazard" to ensure that their reckless behaviour is not repeated and why should the taxpayer shoulder all the risk and none of the rewards when the perpetrators of this debacle continue to enjoy enormous salaries and other perks?

Given that the economy will contract by a massive 4% next year and that State's guarantees to the six banks will expire just a year later, delays in restructuring the banks are simply making matters much worse for shareholders, borrowers and the economy.

Instead of inviting management of the banks to reluctantly submit proposals for rationalisation and recapitalisation, the government should take off its gloves and exercise real leadership by appealing directly to shareholders and announcing cash offers, based on current share prices, to temporarily nationalise the quoted banks.

To ensure acceptance by all six guaranteed banks, it should make it patently clear that the State's existing guarantees cannot be extended and that a special levy, or other sanctions, will be applied to any profits of banks which don't accept the offer. The acquisitions would cost about €4 Bn and warrants should be issued to existing bank shareholders so that they benefit from the restructuring.

On acceptance of the offers, the government should form three distinctive banking entities with realistic balance sheets and new boards and senior management teams. They should be seeded with mezzanine finance from institutional and private equity sources and immediately refloated on the stock market to raise a final round of new capital. The government could, if desired and appropriate, gradually reduce its holdings during the next decade.

Here are some suggestions for the Minister for Finance to consider when he is obliged by circumstances to present a supplementary budget early in the new year in response to the disastrous economic downturn which is still gathering momentum.

They should be implemented in the context of a realistic, attainable five-year plan for which the support of the social partners and opposition should be sought. Given that these are unlikely to acquiesce even though they offer no alternatives other than to strut, whine and oppose, the government should, for once, show real leadership and forge ahead on the grounds that there is no alternative and early action is crucial. Most people will accept pain provided it is seen to be fairly distributed and there is hope at the end of the tunnel. The alternative is much higher unemployment, cutbacks, emigration and extreme hardship which will take a decade to unwind.

As those who gained most from the Celtic Tiger should pay the most, the income levy percentages should be extended on a sliding scale from 0% for the lowest paid up to, say, 10% for those on the highest incomes. Alternatively, a new higher tax rate should be introduced for those earning more than, say, double the average industrial wage.

Given that payroll costs account for half of all public sector expenditure where salary rates are well ahead of equivalents in the private sector and internationally, the Government should roll back the first benchmarking exercise and plead "inability to pay" other than to the lowest earners under the new national wage agreement. It should only recommence payment of increases once major reforms have been confirmed by An Bord Slash.

Taxpayers can no longer be asked to subside "gold plated" pensions for politicians and public servants when the value of their own pensions (if they have one) is dropping through the floor. The Government should establish a realistically funded contributory pension scheme in lieu of the present prohibitively expensive and inequitable "pay-as-you-go" arrangement. As a stop gap, full PRSI should be applied across the public sector and, in recognition that PRSI is income tax in all but name, earnings limits should be removed for all workers in the private sector.

The foregoing measures will arrest the catastrophic deterioration in public finances and enable the new standard VAT rate of 21.5% to be reduced substantially. This will help the lower paid as well as assisting tourism and curtailing cross-border shopping.

Finally, the Dail should immediately start sitting for four full days every week for at least forty weeks a year. To ensure genuine debate and better decision making, backbenchers should be pressurised by constituents to exercise greater freedom of expression in Dail debates, and voting linked to constituents' needs rather than party loyalties should become the norm rather than the exception.

Lead letter published by Irish Times on 8th December 2008.

Our public representatives in Leinster House should get their own house in order before throwing stones about expenses and wasting money.

TDs enjoy some of the highest salaries in the world for sitting in the Dail for less time than opposite numbers in most other countries. These assemblies which operate for under two days a weeks are grossly over manned and hopelessly inefficient and ineffective due to archaic procedures and conventions.

TDs enjoy excellent allowances and related perks which are not necessarily taxed or even vouched for. On top of that, they have extraordinary pension deals and are free to employ relatives at the taxpayers' expense. They throw patronage around like confetti by creating non-jobs for many Minsters of State and Committee chairpersons and appointing friends and camp followers to the boards of hundreds of quanoes which are often used to shield them from accountability.

If our representatives were paid on the basis of results, they would now be hugely indebted to the taxpayer.

Maybe, they would reflect on their own value-for-money during the forthcoming six-week Dail recess.

This letter was published in the Irish Times on 28th November 2008.