Saturday, May 23, 2009

NAMA - more scary stories

Watching the unfolding NAMA sage reminds me of that drunk-driving ad a few years back where a small boy is playing football in his back garden when the car comes over the hedge in slow-motion. I can't bear to watch but I can't turn away.

Drunk at the wheel might be a good analogy for our bankers behaviour in recent years. The Indo has what looks like a well-sourced story about NAMA. It leads with the claim that
developers deceived their banks by using the same assets to secure multiple loans from different lenders
. Michael Lynn on a vast scale. Whether the banks were deceived or not, I have a sinking feeling that the NAMA process has exposed a very dark secret: the security on those vast loans is even worse than we imagined.

Despite Michael Somers protestations of ignorance at the Oireachtas committee, NAMA seems to be gearing up rapidly: the banks are working overtime this weekend because they
have been asked to submit a detailed questionnaire on the make-up of development loan books by Monday

B. Lenihan said NAMA would begin operations on a non-statutory basis but how far will NAMA go before it is given a proper legal basis?

The Indo's story is wide-ranging and seems to be well-sourced. One quote in particular leaves me breathless with its arrogance:
Analysts expect the six lenders will have to write down the value of the loans by between 15pc and 20pc before the transfer, resulting in the NAMA loan book being as low as €72bn when it is up and running.

It defies belief that, having admitted that the security on many of these loans is illusory, this analyst is predicting that the taxpayer will pay the banks 80 - 85% of the book value of these loans.

To top it all, the banks are hoping to get paid to sort out their own mess:
Sources confirmed yesterday that a plan under consideration for NAMA includes paying lenders an incentive fee of up to 10pc of the value of loans the agency can recover over the next decade or so.

A stockbroker is quoted as saying that it made
“commercial sense” for the banks to receive an incentive fee. “They have the most knowledge of their own customers and should ultimately be able to extract most value from the toxic loans.”

It also makes commercial sense to pay a ransom to the kidnappers!

We are no longer dealing with law or ethics here; we are dealing with the exercise of power. The banks have us over a barrel but we can fight back:

The developers are Zed and Maynard but the banks want to be Mr. Wolf.

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