One of the critiques of nationalisation is that state owned banks are open to risks of political influence and cronyism.
Surely then NAMA, a state owned “bad bank” is also exposed to the same risks?
Can the Government realistically avoid the threat of cronyism that risks favouring the property speculators at the expense of the taxpayer?
One of the glaring omissions in framing NAMA is not the entity itself but the policy context in which it will live. It is being proposed in a post-bubble policy vacuum that has not sought to understand or apply the lessons from past.
The missing piece is the public enquiry into and appreciation of the reasons why a NAMA has become so necessary for the financial survival of not only the entire banking system but of the economic survival of state itself.
In socialising bank debt, NAMA will mothball property for years in the hope that that once again people will speculate on rising property prices. The higher the price paid by NAMA for the banks loans the larger the required upturn in property values. The unpalatable fact is for it to succeed, property values will once again have to surge in value. Whose interests are served should this happen?
Banks shareholders and certain classes of bond holders are not the only equity investors to benefit from NAMA. During the boom, developers raised private equity through pooled investment schemes promoted by wealth management divisions of stockbroker and other financial intermediaries to their wealthy clients. Banks not only lent to developers but also lent to billions to private investors who took equity stakes in development schemes.
Wealthy professionals such as barristers, lawyers, dentists together with successful businessmen and women, leveraged off their personal balance sheets, borrowing vast sums to take a stake in the latest venture.
Most private equity investors never considered the shareholder risks involved in agreeing to stand first in line to absorb losses. It appears that billions of these private equity “borrow to invest” loans are to be transferred to NAMA. Many investors are facing financial ruin as a result should their loans be called in. Who are these private equity investors and how politically connected and influential are they?
Despite Government’s assertion that NAMA will pursue defaulting borrowers to the “ends of the earth” it will not happen. NAMA will buy loans not based on their near worthless value today but use a formula that mimics a future property market. It will enter into and fund work out arrangements and do so in private. Inherent within this process is a forbearance that buys time for people to protect their wealth and exposes NAMA to powerful influential forces.
For certain those that in the past colluded to manipulate property assets, generating unprecedented wealth for a small number of people, will use their power and influence to protect their wealth.
Public representatives will shortly debate and pass legislation giving birth to a NAMA, in one form or another. How many are private equity investors in property schemes or directly or indirectly exposed to property loan losses and facing financial ruin? It is the public interest that those in positions or power and influence are not conflicted by their own personal financial affairs in deciding on one of the most serious of pieces of legislation.
Before any vote, citizens should be assured that their public representatives’ conflicts of interest, where they exist, have been declared and openly dealt with. Each year, members of the Oireachtas and boards and senior employees of state and semi-state bodies must declare their financial interests. Perhaps, they should also be required to declare their bank borrowings and whether or not they are not they are in default on their loans and will become NAMA clients.
Rarely has banking posed questions of society as it has it Ireland as few societies have ever become so exposed to severe consequences of a bank led economic collapse.
One solution proposed is for a body of eminent respected international experts to oversee and publically report on NAMA as it decommissions billions in toxic debt. It has been done before in another context when other weapons of destruction were being put out of commission.
No comments:
Post a Comment