Well? When is a haircut not a haircut?
Answer: when it’s not even a light trim.
Now, I’ve been doing a little calculating, but of course I’m not an accountant or an economist, so this is probably all wrong, but anyway, here goes nothing.
Yehudi Lenihan announced that Nama would pay €54 billion for the banks’ bad loans, which have a face value of €77 billion: in other words, he says he’s paying 70% of the original value they had when the loans were issued at the height of the boom. These are the values that were assigned when everyone was coked out of their heads and drunk on power and helicopters. Let’s call this the loans’ lunacy value.
Because he’s only paying €54 billion and not €77 billion, this is called a discount.
But wait. That lunacy value of €77 billion includes €9 billion in rolled-up interest, so the loans were actually worth €68 billion at the top of their value. Their lunacy value.
So not only do the taxpayers make sure that the banks get most of their money back after their disastrous lending spree, driven by greed and stupidity. We also make sure that they get the interest they feel entitled to earn on these criminal loans.
But it doesn’t end there.
Because the government nationalised Anglo-Irish instead of letting it collapse like the zombie it is, we’re liable for the entirety of its bad loans, which amount to €28 billion, out of which you have to strip about €3 billion in phony rolled-up interest. We’ll say Anglo’s total bad assets are worth about €25 billion.
I might just add in passing that Anglo-Irish Bank was not a bank in the sense any of us understand, but simply a conduit for passing credit to builders. It had no importance to the wider Irish banking system and could have been allowed to collapse without the slightest impact on our economy. Yet, despite this, our government chose to nationalise it and make its problems our own.
Well, that’s one of the biggest questions that will have to be answered. Why did Fianna Fáil rescue the developers’ bank when they didn’t have to?
Time will tell.
Let’s see now. Time to recap.
- Nama gives €19 billion to Anglo.
- The government tops that up with another €6 billion.
- Nama gives €35 billion to the rest of the banks.
That makes €60 billion in total, against a maximum loan value of €68 billion, which was their supposed worth at the most insane level of valuation.
That’s 88% of the total inflated value of the loans, when measured at the absolute height of the property bubble.
Isn’t that great? I hope you feel a lot better now, knowing how much you’ve contributed to guarantee the top bankers a sound night’s sleep.
Leaving Anglo out of it, the total face value of bad debt is €49 billion, but you have to take out the proportionate amount of rolled-up interest of about €5.7 billion. (In other words, the interest the banks would like to earn for making insane loans to people who couldn’t possibly pay the money back). We’ll call it €6 billion for round figures. That leaves the face value of the un-nationalised banks’ bad debt at €43 billion.
€35 billion of Nama money goes against this bad debt, so Yehudi Lenihan is actually paying the independent banks about 81% of their lunacy value while their real value might be in the order of €20 billion. Might be. Nobody knows.
So, by my reckoning, Yehudi Lenihan has just suggested that we give the banks’ big institutional investors a free gift of €15 billion.
Now. Have a look at those rough figures and correct me wherever I made a mistake. After all, I’m neither an accountant nor an economist, and I don’t really understand the subtle details of these things.
Now that I think of it, I’m just like our Minister for Finance and our Prime Minister. The only difference is, I don’t have the power to give your money to the billionaires who want it.
Here’s an interesting question in today’s Irish Times.
If the bank loans for Nama are only worth €47 billion, why is the Government going to pay €54 billion?
Do you have the answer?
If so, please let us have it as soon as possible. Thanks.
Meanwhile, Fingers Fingleton enjoys his retirement.
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