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November 2009 Archives

Paying for the Boom

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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.

What is Nama ?

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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

Nama and Rolled Up Interest

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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.

Anglo Irish Bank & Taxpayers

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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 - Horses, Carts and Stable Doors

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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.

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This page is an archive of entries from November 2009 listed from newest to oldest.

October 2009 is the previous archive.

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