NAMA Long-Term Economic Value Explained

Nama valuations made simple

When Nama buys the bad assets from the banks, it will pay them the long-term economic value.

What’s that?

Well, let me put it like this.

Let’s say my house would fetch €200,000 if I tried to sell it.

Now let’s say you’ve agreed to buy my house instead, for a lot more than anyone else will pay me.  Let’s say you’ll give me €300,000 because you don’t want me to be short of money.

Aren’t you good?

You have no way of knowing what my house will be worth in ten years time but you’re guessing it might be worth  €300,000, so that’s what you’ll give me out of the kindness of your heart.

Nothing in history gives you any reason to believe that the value of my house will increase, but you take a leap of faith anyway and you hand me the money.  There ya go, Bock, old buddy!

Aren’t you very good?

€300,000 is a figure you made up, and you don’t know how you arrived at this guess.  Neither does anyone else.  You might be completely wrong about the future value but you’ll still give me the €300,000 now instead of the €200,000 it’s worth.  You’ll never ask me to give back the €100,000, and furthermore, if my house turns out to be worthless when you try to sell it, you won’t ask for your money back.  You’ll take the loss and I get to keep the money.

Isn’t that nice of you?  Isn’t that good for me?

What a deal.

Here’s the worrying bit: this is exactly what Nama is going to do when it buys the banks’ bad assets, except it won’t be paying €300,000.

No indeed.

It will be paying €60 or €70 billion of your money to buy the banks’ assets at their Long-Term Economic Value  instead of paying what they’re worth today.

Long-term Economic Value: what Nama thinks the assets will be worth a decade from now.

Tomorrow’s money today.

Your money, remember.

Isn’t it good?

Are you angry yet?

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DKM analysis

True Economics

13 thoughts on “NAMA Long-Term Economic Value Explained

  1. I don’t suppose there is any chance, the long term value for any of these assets, will be set at zero.

  2. De Fan what a silly notion. The word “if” joined with the word “enough” in the bin years ago. Naturally the 1,500 of the Golden Circle will bounce back in no time and will be back in the helicopters and down to the races, Golf clubs etc. The great unwashed will be back buying matchboxes for hundred of thousands of euro. The boys of NAMA will know that it is in their personal interest to keep the Banks and the other’s of the Golden Circle Happy.

    .

  3. The long-term economic value of many of these assets is actually less than zero because of what it would cost to demolish the buildings, dig out the foundations, remove the rubble and replace the topsoil.

  4. Bock of course. Shall NAMA or our wonderful Great leaders look at it this way? I think not. Four million of us and our descendants shall have to pay for the incompetents and greed of approximately fifteen hundred so called developers funded by cretins posing as bankers.

  5. The other worrying thing is that If you agree or disagree with the proposed Lisbon treaty it doesn’t really matter as we have no choice but vote for it.

    If we reject the treaty the other EU countries will simply find a work around and let Ireland like they did Iceland out in the cold on the periphery

    Since the establishment of NAMA we are now more than ever reliant on Europe with the whole scheme being underwritten by the ECB (European Central Bank), over €100bn will be pumped into our government bonds and banking system if NAMA is given the green light in the Dail on Wednesday.

    It’s clear NAMA has its flaws these need to be further ironed out – a situation in which continuity Finna Fail (Green Party) would also be of the same opinion. I personally would like to see a better option put forward but failing that I would like an inclusion which stops these failed banks and developers from buying back their toxic assets in a few years time.

    These bad debts need to be bought back at a stripped down cost. Once these debts have been bought back the banks need to put this money back into circulation and not simply leave it in its reserves.

  6. No, Bock. They are going about it in the correct way IF they pay 30% of the face of the paper, and then nationalise. Doing it the otherway you will have the headache of having the shareholders and bondholders lining up to go the the four goldmines. Where they will win, for there they can argue. While that 30% will simply and clearly explain that their holdings no longer exist.

  7. Gary, have a look over on McWilliams blog. But there are about four different costs involved in overpaying for these assets.
    Anyway, there is this notion that the banks will lend once they are Namaised, however this is untrue, invalid and just plain wrong. And with all the costs connected, one way or another the citizen will pay.

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