The whole point of Nama is to transfer money to the banks.
Always keep that in mind.
Whatever they tell you about haircuts, remember that Nama will still be paying the banks more than their loans are worth, through a deft piece of doublethink known as Long-Term Economic Value.
This means that Nama doesn’t buy the assets from the banks at their current value, but at some price which they hope will emerge perhaps ten years from now. It’s like buying an Ikea table and waiting for it to become an antique.
All well and good. Who knows? Perhaps some of the properties that these loans are secured against will recover part of their value, but where does that leave the so-called Ghost Estates?
These are the abandoned building sites in Roscommon, Leitrim and Sligo, where concrete mixers lie rusting, on their side, and roofless shells of houses slowly deteriorate in the rain.
There’s a conundrum for you. The ghost estates are worth absolutely nothing today. Not a cent, because nobody will buy a house in them. They’re worthless, but that isn’t the worst part of it for Nama, which is spending your money to acquire the associated assets: namely, the bank loans.
You see, not only are these houses currently worthless, but their long-term value is even less than zero. Why? Because they are slowly crumbling and will eventually have to be knocked, which will cost a fortune in demolition, removal of the rubble and reinstatement of the land for agriculture. Many of them are timber-framed, a method of building which was uncommon in Ireland until a few years ago. Any house built in this way, which has not been protected from the weather, is now uninhabitable, and cannot be repaired. Many more have been soaked so long, with exposed cavities, that their timbers are saturated and their polyurethane insulation has been degraded by ultraviolet light. These houses are fit only for the bulldozer.
It’s even worse than that. Apart from the houses in the areas I mentioned, where the demographics ensure nobody will ever live in them, there are estates in our urban centres which are at a standstill for financial reasons, and many of these houses will also feel the kiss of the bulldozer, because they’ll have rotted away while the money gets sorted out. Ironically, when these houses are knocked, identical new ones will be built on their foundations.
So, what exactly will Nama pay the banks for assets which are currently worthless , and which will gradually turn into a huge financial burden? What sort of haircut do you think the banks should be expected to take?
Even if it didn’t pay a penny for these loans, Nama would still be doing the banks a huge favour if it took them over.
Why? Because it would remove the long-term toxicity from the banks and place it on the shoulders of the taxpayer.
It’s one thing to buy assets which are worth less than they should be. It’s another thing to buy assets which are worthless.
But what about acquiring assets which will become more and more toxic as the years pass?
Why should the taxpayer do such a thing?