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That NAMA bailout… September 4, 2009

Posted by WorldbyStorm in Economy, Irish Politics.
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In the Irish Times earlier in the week Seán Barrett had strong words to add to Fintan O’Toole’s neat skewering a day or two earlier of the utterly flawed and downright ignorant rhetoric emanating from at least one Fianna Fáil spokesperson as regards NAMA.

Barrett, who IIRC correctly is no man of the left, argues that:

The builders will be relieved of their gambling debts on high property prices. The bankers will be relieved of the costs of their incompetent lending and senior regulators will no longer have egg on their faces but be reinvented as neo-Keynesian economic heroes who save the economy.

And further:

It will be so easy. Nama pays off the builders at a bit less than bubble prices, builders pay off the unreformed banks and banks will immediately begin investing in productive economic activities and will never be codded by builders again, really. Nama is a macroeconomic three-card trick to refinance incompetent Irish bankers and reflate a property bubble without addressing reform in the property market, banks or bank regulation. It has dire microeconomic consequences for these sectors and adverse consequences for the rest of the economy.

He also suggests that:

It is silly for the proponents of Nama to maintain that paying above market prices for impaired assets is not a subsidy to bankers and builders. The banks themselves, with the exception of ACCBank, have spent a lot of time and money at the High Court and Supreme Court to buy time so that they may benefit from Nama.

But to me the most interesting point he makes is the following…

The immediate result of market exit by bankrupt builders and bankers would be a fall in property prices. This will reduce the cost base of the Irish economy. Ireland would gain in competitiveness by having lower property costs. A target in our economic recovery should be to reduce the ratio of house prices to average earnings. The prospect of Nama is preventing prices from falling now and delaying Ireland’s economic recovery.

Interesting how labour costs have been – in the media – made out to be a central villain of the piece, when it is clear, as others even on the centre right have indicated, that other costs enter the equation. But in a state where property values have been regarded as a near untouchable third rail (in the sense that during the boom there was no appetite to damp down the markets seriously and that subsequently we have seen the profound reluctance to do anything in that area, as against a strong appetite to deal with other issues that may or may not be as central to our woes) I have no confidence at all that anything will be done to engage with this problem along the lines that even relatively conservative economic analyses such as the above propose.

Meanwhile, here’s an interesting snippet to consider in light of GFG’s statements on borrowing, etc… Richard Curran writing about arguments pro and contra NAMA in the Sunday Business Post notes that:

Fourthly, nationalisation would close off the banks to private funding and overly politicise the operation of the banking system. Deposits could be withdrawn because nationalising is seen as bank failure. The critics said with the state behind them, they could attract more funding and given that the Irish government has no difficulty raising borrowing in the international bond market, there is no reason to believe that international financiers would be more nervous about providing wholesale funding or placing deposits with nationalised banks.

Shurely shome mistake.

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1. t g macamhloaibh - September 4, 2009

I see cracks starting to appear in the mythical market capitalist doctrine. I just wonder if the left has the ability to exploit it? Broadly speaking, there are the present oligarchs (those who’ve obtained power and wealth) trying to defend their positions through NAMA, the FED and other such projects. There seems to be a larger portion who demand reform and a return to a more benign form of capitalism – an ozzie & hariet ideal if you like. Capitalism, whether in its more pernicious present form or the ‘ideal’ form simply lead to the same conclusion. The more benign form just takes longer to achieve our present state, and reaps the benefits of technological change, while the current form is quicker and exposes the underlying faults. Of course, the vast majority sit upon the sidelines wondering what the hell’s happening.

I wonder if there is an opportunity to begin some small reforms of the total system, rather then mere regulation of the existing regime, which might attract those on the sidelines without spooking the MS doctrinaires?

I’ve often think that the current tax redistribution scheme is nothing more than ‘bread and circuses’ economics which enables the current regime to propagate its capital accumulation (and creation of rentier monopolies) doctrine without too much attention being paid by the vast majority of people. Maybe a democritisation of front-end income via broad share ownership, income co-ops, and revitalisation of accouting standards which cost social risk and environmental damage might be a first step in dismantling the current juvenile economic regimes?

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2. WorldbyStorm - September 4, 2009

t g, that would be my position entirely as regards this being an opportunity for reforms, large or small… and I think there’s a lot in what you say about democratisations, that said, how would broader share ownership be done in such a way as to predicate against the sort of negative outcomes vis eircom, etc where individual small shareholders remain very much at the mercy of larger

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