Richard Bruton (Dublin North Central, Fine Gael)

I welcome the opportunity to debate this issue. It is unfortunate that on a matter of such enormous importance as the establishment of an asset management agency which will manage €90 billion of taxpayers' money, the Government has sponsored no debate. It has required the Labour Party to table a motion in the House to have any sensible debate on these issues. That is unfortunate because this is an extraordinary decision by Government to establish a national asset management agency on the basis of the thinnest and flimsiest assessment of its merits.

Fine Gael has a very different view from the Government's approach. We believe now is the time to establish a new, State-run national recovery bank whose task would be to fund investment for job creation and activity in the Irish economy. It would be based on providing liquidity to good lending in our economy to bring money straight into the vein of small business and get good lending going again.

Nothing like sufficient thought has been put into the Government's proposal of an asset management agency. At a time of serious uncertainty when governments across the world are groping cautiously to find solutions, it is not the time for a small country with a deep problem in its public finances to attempt to plunge into a project on a scale never before attempted in any other country. That is the reality. The French Government undertook a similar, although much smaller, attempt of this nature in 1995 and it ended in tears with taxpayers losing very significant amounts of money, €18 billion, on a much smaller operation.

Serious concerns have been raised, not just by spokespersons in this House who might be regarded as Opposition, but by people who are entirely independent in their assessment of NAMA. None of these has been answered. We have the difficulty of pricing the loans, of which the Government seems to be aware, and the risk that taxpayers will be left shouldering the losses. We have the risk of unending court battles with developers and others who seek to challenge the agency's approach to dealing with impaired loans. We have the moral hazard of bailing out professional investors who put their money into the banks. They were grown up, knew what they were doing and invested in this banking bubble. We are saying the taxpayer should shoulder that, which is the logical implication of what NAMA will do.

We are establishing an agency that will manage a book value of €90 billion in development land. This is on Napoleonic scale. We have not seen the management approach that can deal with this. All the records of evidence in other countries show that the management of this proves to be highly unworkable and that it proves to be unable to recover money on the scale of other approaches that would be preferable. NAMA opens up the possibility of the politicisation of the write-off of loans and the management of these issues.

These are very serious hazards and none of them has been addressed. No evaluation of this proposal has been published, other than a flimsy document by an economist whose credentials are clearly open to question and who came from the stable of development. While one can assess his paper on its merits, we need an independent stress test. We are talking about stress testing the loan books in banks. Surely we should stress test the Government's proposal to take €90 billion of impaired loans onto the shoulders of the taxpayer. Where is the stress testing of it? Instead we hear the Government is rushing headlong with this proposal. Without a single endorsement from this House on the proposal it has already appointed an acting chief executive, is about to appoint a board, is plunging ahead with the legislation and refuses point blank to use powers available to Government to discuss the heads of the Bill in this House so those who represent taxpayers can have some say about what taxpayers are being asked to shoulder. The Government will not agree to any of that.

I can well understand why some people, and the Labour Party is doing it tonight, favour nationalisation over this extraordinary animal the Government is creating. However, we must tread carefully with regard to nationalisation. Although it would not require an immediate investment of cash by Government it involves many of the difficulties thrown up by the Government's approach. If we decide the taxpayer is going to nationalise the institutions the taxpayer is then forced to shoulder all the potential losses. This system risks the taxpayer having to pay too much for the shares and creates a situation in which professional investors are bailed out by the taxpayer. Once again, lending decisions are politicised. There are significant problems with the operation of nationalised banks and therefore nationalisation should not be seen as a panacea. It resembles the Government's proposal in that it is one major throw of the dice to which the Government would commit us without our having adequate sight of the territory that lies ahead.

Fine Gael proposes a different approach, one that is much more gradual in its action on this problem. The first action is to establish a national recovery bank that would provide liquidity to the banking sector. This can be done under the asset-covered security legislation which is well established. The vehicle is there and it could be done within weeks, using taxpayers' money, perhaps €2 billion. On the back of that sum we could leverage as much as €40 billion in credit activity, whether purchased from the banks or as a new loan.

The advantages of this approach are several. It gets credit flowing straightaway and allows the banks to strengthen their balance sheet by swapping part of their loan book for cash. It creates a solid spine for long-term banking in this country so that there is a strong wholesale bank underpinning present and future banking here. It allows the existing relationship between businesses and their banks to continue because that is still the vehicle for selling loans. It leaves the toxic property loans in the hands of the private banks that created them and which have better incentives and skills to manage them than we have. Vitally, it leaves it to the banks to refocus on structuring their operations, working out the losses, not expecting the taxpayer to step into the breach as the first to take and shoulder them. It allows those who were involved to carry the risks and costs and share the burden. It does not claim that the taxpayers should be first up to take that burden. Of course, the problem of unwinding those impaired loans remains but it will be unwound with responsibility for the problem lying in the first instance on those who created it. It will not find the taxpayer stepping in as the first lender.

This approach also allows us the time to look at what other countries are doing. I believe other countries will see in their wisdom that the taxpayer cannot save everyone and cannot be asked to rescue the professional investors who knew what they were doing when they entered into their lending commitments to banks. These were not innocent depositors with small amounts of money that would otherwise have been in their mattresses but were grown up investors who knew what they were doing. I do not believe the taxpayer should have to step up to the plate to bail them out, which is what both nationalisation and the NAMA approach would involve.

In this very difficult circumstance we face, with our public finances in serious difficulty, the taxpayer cannot simply shoulder the burden of dealing with those professional investors, allowing them to recover their money at 100%. We must look at other and better ways to resolve this problem. The virtue of the Fine Gael approach is that it allows time to do the negotiation and find ways of making those others who were professional investors share their load in the losses. That is vitally important.

It is notable that France, which got its fingers burnt in a NAMA-type approach in 1995, is now adopting an approach very similar to the one we are advocating the Government should consider. It is a type of asset management agency that does not purchase toxic loans but instead buys the good loans. It provides the flow of credit into the banking system that can fuel the small business lending and mortgage lending the country needs but under rules that are decided by the State. With that approach we would no longer have 100% mortgages or bad decisions in putting together loans. Such a wholesale bank would be in a position to dictate the terms on which banks would operate.

I do not wish to overrun.

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