No margin for error on Nama

[Dreaded_Estate]

Two fundamental errors here by Ronan Lyons.

1. He says "particularly if the taxpayer is expected to foot the bill."
The taxpayer is not expected to foot the bill, the banks are expected to foot the bill.

2. He says "If the fall is slightly bigger than 47 per cent on average – say 55 per cent – we need a 36 per cent increase in the next decade, not a 10 per cent one"

For the 10% figure he includes the 5% risksharing bonds in his calculations, but for his 36% increase he does not, thereby increasing the differences between the two figures.

Not good enough for an "economist" trying to give a fair representation of the facts.

The first point is a matter of opinion Hal.
If property prices continue to fall then a levy will never be able to recover the losses from the banks therefore the taxpayer is taking on all this risk.

On point 2, if property prices have fallen by 55% rather than 47% prices do need to increase by 29% rather than 36% assuming that the subordinated bonds pay no coupon or interest to the banks which would reduce the risk sharing for the taxpayer.

But this makes no allowance for the possibility than NAMA will always receive more interest/rent than it pays out, it also makes no allowance for the operating costs of NAMA. So 36% might be closer to the truth than 29%.

What do you make of the points that the NAMA analysis only used yields on a very small segment of the portfolio of loans?

And that no thought seems to have been given for yields returning to normal by falls in rents rather than increases in property prices?

[Dreaded_Estate]

That's true, but that is not what Ronan is talking about, if anything he is saying the taxpayer should put more of our very expensive borrowing directly into the banks, rather than low cost borrowings through NAMA.

Would you stop repeating this nonsense Hal!

[Nerdfest]

And no, the banks customers will not be paying the levy, the shareholders will. If the banks could be squeezing more out of us by way of extra charges, they'd already be doing it.

I find that argument very hard to stomach. It may not be passed on directly, but it will be passed on to customers.

How will the shareholders be asked to pay the levy? By not giving out dividends? Dividends are off the menu for years to come anyway. Will shareholders be sent an invoice or be asked to make a donation?

[Hal]

I find that argument very hard to stomach. It may not be passed on directly, but it will be passed on to customers.

How will the shareholders be asked to pay the levy? By not giving out dividends? Dividends are off the menu for years to come anyway. Will shareholders be sent an invoice or be asked to make a donation?

I can only point out the facts of the situation, what you personally decide to believe is your own business.

[Nerdfest]

I can only point out the facts of the situation, what you personally decide to believe is your own business.

How will the shareholders be made to pay the levy, while sparing customers of the banks from paying any of this levy?

Lets say at the end of Nama, Nama is short by 1 billion Euro and levy on the banks is introduced so that the tax payer is not left with that bill.

How will the banks get that money from the shareholders and not from the customers of the banks?

[Mitsui]

How will the banks get that money from the shareholders and not from the customers of the banks?

Simple answer: they won't.

[Nerdfest]

Simple answer: they won't.

I think thats likely as I said, but I'd still be interested in what the actual mechanism is. I don't know enough about banking so am interested in knowing what the mechanics of that levy on the shareholders/bondholders might be, that would protect bank customers from footing this bill.

[Dreaded_Estate]

Great graph from Ronan Lyons showing the increase needed for falls in current value of property.

As Hal says it doesn't allow for the €2.7bn in subordinated bonds but nor does it allow for operating expenses and any potential shortfall in the interest received/paid.

[rubensni]

All NAMA is doing is buying the banks time & space to let them get back to generating profits through lending. In the end through a many times mentioned levy, the banks will pay the full losses, if any, of NAMA. This has been said to the ECB, the IMF and not least to the Irish public, too many hostages to fortune there for the levy not to happen, if and when necessary. And no, the banks customers will not be paying the levy, the shareholders will. If the banks could be squeezing more out of us by way of extra charges, they'd already be doing it.

That is speculation. Two reasons:
1. Any levy would be imposed on the institution. Why wouldn't the banks pass the costs associated with this on to their customers rather than take it out of profits.
2. The biggest beneficiary by far of Nama is Anglo Irish Bank, a nationalised institution. The shareholder is the minister for finance (i.e. the taxpayer)
Facts:
1. No bill has been brought forward to lay out how any levy will be imposed.
2. You're presuming that a politicians promise actually carries water.

[irishpancake]

Two fundamental errors here by Ronan Lyons.

1. He says "particularly if the taxpayer is expected to foot the bill."
The taxpayer is not expected to foot the bill, the banks are expected to foot the bill.

2. He says "If the fall is slightly bigger than 47 per cent on average – say 55 per cent – we need a 36 per cent increase in the next decade, not a 10 per cent one"

For the 10% figure he includes the 5% risksharing bonds in his calculations, but for his 36% increase he does not, thereby increasing the differences between the two figures.

Not good enough for an "economist" trying to give a fair representation of the facts.

From Irish Economy Blog

1. [COLOR=#0000ff]Ronan L[/COLOR] Says:
   [SIZE=2][COLOR=#800080]September 25th, 2009 at 2:10 pm[/COLOR][/SIZE]
   Slightly extended version, complete with pretty graph, here:
   [COLOR=#800080]http://www.ronanlyons.com/2009/09/25/the-importance-of-getting-namas-core-assumptions-right/[/COLOR]
   (And to clarify: market-rebound percentages do not take account of the ‘risk-sharing’ element of €2.5bn or so.)

Quite possibility Ronan added the above comment in response to HAL's point 2. not sure, however he has clarified.

HAL's use of the term "economist", using ironic scare quotes implys that HAL/Tonys doubts Ronan's bona fides.

Does he doubt that Ronan is indeed an Economist?

From Ronan's Web-site About Me section:

Welcome to my website – I hope you find it useful. I am an economist, with an interest in the Irish economy, the world economy and property markets, three topics which form the backbone of the site. My experience is as an economic researcher and analyst across academic, private and public sectors, with work in the areas of public policy, national competitiveness, property markets, ICT and economic development, economic growth, foreign direct investment and the history of globalization.

I would submit that his credentials are open to scrutiny and bear very favourable comparison with those of your former hero, Mater Hospital Bookeeper Bertie "Rathmines College of Commerce, University College Dublin and London School of Economics" credentials.