A low cost taxpayer solution to the banking crisis

[patslatt]

NAMA buys only a small minority,say 10%, of bank loans on property assets at stated book values, but it acquires total management control. Given a 10% ownership,pricing of loans would not be very important but any NAMA overpayments would be compensated eventually as assets are sold off. The banks would agree contractually to cede control as a tradeoff for the government purchase of preferred shares and a government agreement to buy ordinary shares as necessary to recapitalise banks.

Each bank must agree not to lend money to its customer developers (or to their family members or business associates) who owe this bank money,the purpose being to prevent a zombie bank situation in which banks preoccupied with nursing hopeless developer loans refuse to lend to viable businesses.

The above proposal doesn't deal with overvaluation of bank loans to property developers. With the toxic property loans taken out of the banks' management,the zombie bank spectre is removed. This would give investors confidence that the banks will resume bank lending on a sensible commercial basis. The overvaluations would be written down as bank properties are written off on sales. It would also be possible to do a massive and complete writedown as part of a public secondary offering of the government's roughly €12 billion of bank shares plus a new treasury shares issue to recapitalise banks a few years hence.