NAMA: Bank Robbery Stage Two

By Kieran Allen

During his budget speech in April, Brian Lenehan dropped a
bombshell: The Irish banking system had bad debts to the tune of €90 billion.

This was the first clear statement of the magnitude of the
problem.  Before that bankers boldly proclaimed that everything was fine and
people had to simply trust them.

In April 2008, for example, Dermot Gleeson, the chair of
AIB, said that the bank was “stable and robust.” And then in October, Eugene
Sheehy, AIB Chief Executive Officer said that, “we would rather die than raise
equity.” Finally, In December, Donal Forde, a managing director, said “AIB has
made it clear that we don’t feel we need capital.”

Yet these very rich people were soon delighted to see the
Irish state put a staggering €3.5 billion into their bank in early 2009.

Now the government has gone one step further and set up a
toxic bank known as the National Assets Management Agency (NAMA).

NAMA will buy up all the banks’ bad debts at a discount
price. The discount will probably come to about 60 percent of the loan value
and the government will become responsible for collecting the interest on these
loans.

But, of course, the borrowers are nearly bankrupt. So the
idea is that the state can take control of the underlying asset – the land or
property – that was put up as collateral for the loans.

The problem, though, is that this collateral has also
dramatically shrunk in value. So essentially, the state will be left with
assets that are worth a fraction of their paper value.

In other words, the state will have paid out far too much to
buy the bad debts. If the state were to buy the loans at their real knocked
down price, the banks would be driven out of business. Therefore, the whole
basis of NAMA is to the state will pay over the odds for bad debts just to let
the banks survive.

Two major international agencies have already estimated what
the bank rescue plan will cost the population. Standard and Poor puts the
figure at €20 billion, while the International Monetary Agency puts it at €24
billion.

Both of these figures are higher than the projected cuts the
government will try to impose in budgets for the next five years.

So why are they engaged in this utter madness?

After Ireland joined the euro, Irish banks discovered a new
way to make profit. Instead of taking in deposits of Irish customers and
running all sorts of over-charge scams, they borrowed money on international
money markets and used these to pump up the Irish property market.

So borrowings from international bondholders – rich speculators
– shot up from €30 billion in 1999 to €150 billion in 2008. The state
facilitated this by allowing banks to maintain a low ratio of reserves to
assets. By December 2008, these amounted to only 4.3 percent, which was one of
the lowest in Europe at the time.

When the crisis first hit in September, Lenehan and Cowen
got calls on their mobile phones asking them to come to a late night meeting
with the heads of the banks. The two FF politicians agreed to a quick fix plan
to guarantee all the loans for the banks – against, according to some reports,
the advice of some Department of Finance officials. The loan guarantee was
designed to satisfy the international bondholders but it pushed up Irish
government liabilities to €450 billion.

As the crisis developed it became apparent that banks – who
lied through their teeth – might default on those loans. So the result is that
the government is ploughing in ever more money by setting up NAMA.

There is a solution to this utter madness: Allow all the
banks to go bankrupt. Take their offices and accounts into public ownership.
Tell the international bondholders, who helped cause this financial crisis, to
go screw themselves. Establish a state bank to facilitate credit for socially
usefully purposes. Estimated cost: very low.

This totally practical and sensible solution has only one
condition: we have to set ourselves on an anti–capitalist track