Those of you who attended would remember a comment from the audience that Ireland has a debt overhang on the private economy side and that NAMA is justified as a form of correcting it. This is, in my view, the singular most problematic issue raised for five reasons:
- Logic commands us to look at a problem to determine whether or not it requires a solution. Once we deem the problem to be grave enough to require a solution, it commands us to devise an appropriate solution. I agree – debt overhang is a severe problem and it requires a solution. However, no logic requires us to undertake a wrong solution to a rightly identified problem.
- Economic efficiency argument tells us that we need to solve the problems relating to the most productive sectors of the economy first so as to rescue our productive capacity. Once that is done, only then can we have a luxury to use limited resources to address problems in less productive sectors. NAMA will concentrate solely on the problem of debt overhang on the developers’ side. It will not address debt overhang on consumers’ side or on the side of our businesses. Yet, while developers who are in trouble are not a part of the productive sector of our economy (they are, by and large in trouble because of highly speculative re-zoning and building projects they undertook) or at the very least not the most productive part of our economy, households and companies are the productive components of this economy. NAMA will do two things to Irish companies and consumers. It will retain their debts and magnify them by forcing banks to increase their existent loans’ profit margins (as we are already seeing with variable rate mortgages and accelerated loans revisions for performing customers on the business lending side). And it will saddle companies and consumers with the debts of developers via NAMA bonds. Which part of this economic policy is economically literate?
- Financial efficiency requires us to undertake a form of solution that minimises economic and financial costs to the taxpayers. NAMA is the least economically efficient means for doing so, for an alternative – buying out the main banks or forcing a restructuring of their debts (possibly via an debt-for-equity swap) will be cheaper and will offer more control and upside potential to the taxpayers.
- Any Government policy must apply, without discriminating against or in favour of any particular group of people. And yet, NAMA will create a discriminatory structure whereby the failures in pricing risk by the banks and developers will be dumped unceremoniously onto the shoulders of the ordinary taxpayers. As a taxpayer, I face no chance of doing the same to the banks. In fact, even more egregiously, Minister Lenihan – a lawyer by training has announced recently that he cannot interfere in the ‘markets’ on behalf of the variable rate mortgage holders who are being fleeced by the banks hiking their rates to push up profit margins. This is the same Minister Lenihan who has no problem interfering with the ‘markets’ by dumping some €60bn in banks’ liabilities on to the taxpayers. This is discriminatory, in so far as both actions are one way streets – the banks cannot be made accountable to the taxpayers, and the taxpayers cannot be allowed to renege on transferring their wealth to the banks.
- Political and ethical legitimacy requires that any solution that uses collective resources must address first the needs of those who provide resources. In the case of NAMA that means the ordinary people. Not of companies (they come second in the tier as employers and creators of added value) and certainly not of the developers (who come in third in the picking order). Which part of NAMA will address the needs of an ordinary family that is going to:
- Pay taxes Messrs Cowen and Lenihan levy on us, while
- Also paying for NAMA, while
- Facing a risk of financial ruin from unemployment and
- Possible home repossession should the default on a mortgage payment because their savings will be wiped out by NAMA debt burden; whilst
- Having the bleak future with no pension provision as
- The banks and Messrs Cowen and Lenihan enjoy a nice tidy rescue package paid for by the aforementioned 21st century Irish Government serfs?
Hence to argue that we must support NAMA because we have a debt problem in this country fails on five fundamental principals: logic, economic and financial efficiency, non-discriminatory action by the state and political and ethical legitimacy. It is deeply immoral and has not a single rational point in its favour.