Phil Hogan (Carlow-Kilkenny, Fine Gael)

People are annoyed about how we got to where we are. Many are saying the banks and developers got us into this trouble but at the end of the day the problem arose following a change in Government policy in 2004 arising from a report drawn up by the eminent senior counsel former Minister Michael McDowell and implemented by former Minister for Finance, Charlie McCreevy, which split the Central Bank and Financial Regulatory Authority of Ireland and did not put in place the type of regulatory regime required to ensure the practices followed in the banks were not allowed to obtain. It seems the Governor of the Central Bank stood idly by while much of this was happening. While he might have stated his concerns about our over-dependence on property in the context of what was being borrowed from banks, he put it in very small print and it was largely ignored.

The difficulty we have with the National Asset Management Agency is that it is secretive, totally tax-funded and a politically directed work-out process for 1,500 of the most powerful, well connected business people in the country. Deputy Ardagh and other members involved in the DIRT inquiry know from experience of the dangers in this regard based on evidence given at that inquiry by financial institutions. They do not always tell the truth, as members of the inquiry found out on that occasion. While much wrongdoing in the financial institutions was exposed at the time, regrettably, not much was learned from it. In other words, a property regulatory system was not put in place to ensure the same did not happen again.

Not only will taxpayers be scalped by this proposal brought forward by the Government on behalf of developers whom NAMA will deliberately overpay in respect of toxic loans, they will also be in danger of being scalped a second time by developers. Secrecy in the use of taxpayers' money is at the very heart of NAMA. Under the Bill the public can be prevented from knowing the names of the developers whose loans will be bought by NAMA with taxpayers' money, the price paid by the taxpayer for these loans, the original value of the loans, lands purchased and amount invested by developers in such deals, the actions taken by NAMA to recover the loans now owned by the taxpayer, the names of those who will benefit from the €5 billion in new tax-funded loans that NAMA will make available to developers to complete their projects and the terms and conditions of loans issued by NAMA to developers and whether these loans will be being given on a commercial or subsidised basis.

This presents the alarming possibility that NAMA will, for example, use taxpayers' money to buy a €200 million non-performing developer loan from a bank, lend a further €100 million to the that developer to fund completion of the development and the public will never know. Not alone will the absence of disclosure and transparency provisions leave the taxpayer ignorant and vulnerable about what is going on but the legislation also provides extraordinary powers in terms of political interference at every stage of the process, from hiring and firing, asset valuation and the rules of engagement with defunct developers. This is a frightening formula for sweetheart deals, crony capitalism and taxpayer losses on a massive scale in the next decade at the very time we need to restore our international reputation and use every euro to protect public services and the fairness and competitiveness of our tax system.

The Government likes to cite Sweden as an example of where a NAMA-type bank rescue worked. If there is one thing we have learned about our political system and civic institutions in the last decade, it is that Ireland is not Sweden. In countries with political institutions more vulnerable to business lobbying this approach does not have a proven track record. Only last November the International Monetary Fund, IMF, the world's repository of expertise in financial crises, completed a study of banking and property busts in seven other countries where the NAMA approach was adopted. It concluded that, "Government-owned asset management companies appear largely ineffective in resolving distressed assets largely due to political and legal constraints" and that "the use of asset management companies is positively correlated with peak non-performing loans and fiscal costs". In layman's terms, the IMF believes NAMA-type bank rescues can end up costing taxpayers an arm and a leg because politically directed state quangos are much less skilled than private bankers at recovering loans from rich, powerful and well connected borrowers.

The example that stands out is France where in the 1990s a NAMA-type asset management company lost a total of €18 billion of €28 billion worth of assets purchased by the taxpayer from Credit Lyonnais. The advantage of Fine Gael's wholesale good bank solution which, significantly, the French have adopted after their disastrous experience with their own NAMA in the 1990s is that the risks and responsibilities associated with working out distressed developer related loans would remain with those professional bankers and investors who funded the loans and would be best placed to recover them. I have always believed the only person who can sort one out when in financial difficulty is one's own bank manager because it is he or she who knows all about one in terms of guarantees and income and the lies one told in the past. Private investors would employ the best skills and judgment to recover as much of the money as possible and there would be no public disquiet about a soft touch approach for the well connected developers. The only responsibility of the State should be to ensure we have a well capitalised, functioning banking system that delivers credit to struggling businesses and households. I firmly believe the NAMA solution will not do this.

People have lost trust in the Government and require greater reassurance and transparency if NAMA is to work. Politicians should not be involved in any aspect of this work, in particular, valuations. I agree with Deputy Sean Fleming who raised concerns in this regard. It is hoped his soundings on the matter will fall on deaf ears on Committee Stage.

The Minister's numbers in the context of the Bill amount to a financial fairytale. He claims that the value of the assets transferred to NAMA will have only to rise by a modest 10% during the next ten years for NAMA to break even. Presumably, this is based on the simple calculation that guaranteed upfront payments to NAMA, long-term economic value less subordinated debt, will be €51.3 billion or 10% more than the official estimate of current market prices at €47 billion. While this sounds highly reassuring, a couple of difficulties arise. We have no idea of where the Minister got his estimate of €47 billion. A number of people believe this to be optimistic in terms of current market value. Some €56 billion worth of the underlying assets are land and development projects located, in the main, in Ireland where values have tumbled by between 70% and 95%. Even finished commercial office buildings here and in the United Kingdom have seen their values tumble by 50%. One must question the basis for the 47% write-down in the value of underlying assets that underpins the Minister's assumptions.

The Government's assertion that prices have hit a trough and are soon to rise is based on the high commercial yields in the Dublin office rental market. The fact that these yields are likely to fall because of falling rents seems to have escaped the Minister and his advisers. He expects NAMA will pay its way, wash its face and pay interest on the basis of an initial introductory offer of 1.5%. However, the fine print shows he will be paying interest of 5% after the first year, leaving a €12 billion black hole in his figures. This implies that the funding costs of NAMA, assuming current market value is correct - independent commentators are suggesting it could be nearer €38 billion - require a 75% increase, rather than the 10% suggested by the Minister, in prices during the next ten years.

I would like at this point to speak about the speech made by the Minister for the Environment, Heritage and Local Government, Deputy Gormley. It was the speech of a party leader who has failed to deliver. The Green Party promised risk sharing with the banks. According to the chairman of the Green Party, Senator Boyle, they expected risk sharing on a 50-50 basis but they only got a figure of 5%. The banks have hoodwinked the Government and Fianna Fáil has hoodwinked the Green Party. The Minister, Deputy Gormley, claimed virginity in relation to financial markets. Let me explain. If share prices rocket to the extent that they rocketed in the case of Allied Irish Banks and Bank of Ireland today, one can be assured the deal obtained by the banks is better than the markets had anticipated. In a sure sign of delivery failure, his speech is all about what he hopes to do next rather than what he has done in the past two and a half years. He once more flies the kite of planning change, but when will those changes be implemented? What is the reason for the delay in bringing such legislation to the House in the past two and a half years?

The Minister promises systemic changes in a culture of greed and stupidity. Yet the legislation he is supporting has at its heart the reinforcement of the culture that got us to where we are today. The bankers, developers and politicians will remain joined together in the same toxic triangle described by the Labour Party leader, Deputy Eamon Gilmore, this morning. The bottom line is that the ultimate arbiter of valuations will be the Minister for Finance. After outlining his wish list for legislative and planning change, the Minister for the Environment, Heritage and Local Government said he will push for further amendments to the NAMA legislation. I understood this had all been sorted out at the Cabinet meeting last Wednesday after which the Minister, Deputy John Gormley, and the Minister for Communications, Energy and Natural Resources, Deputy Eamon Ryan, claimed they had secured significant changes.

However, after getting it in the neck from their members in Athlone last Saturday, they were obliged to announce that more changes were required. In the past week, the Green Party has gone to extraordinary lengths to spin its involvement with this legislation and push its influence. After the euphoria of last Wednesday evening, it was back to brass tacks when members gave their views. We must depend on Green Party members at their conference on 10 October to tell their parliamentary party masters, who have become more Fianna Fáil than Fianna Fáil itself, what is good for the country and what is in keeping with the spirt of Green Party policy over many years.

The bottom line for Fine Gael is that we are not convinced, for the reasons I have outlined, that this proposition will succeed in getting credit flowing to businesses, thereby retaining and creating employment. We must look to others to devise a more transparent and less politically driven vehicle than NAMA to get us out of the current difficulties. People are struggling to come to terms with the sum of €54 billion. This is the price of the enormous mistakes that were made as a consequence of lack of regulation of financial institutions. Those involved were allowed to do what they liked, becoming intoxicated with property development as if there would never again be a poor day.

A perfect example of this type of activity is what went on at the Dublin Docklands Development Authority, DDDA, which was apparently run like a downtown branch office of Anglo Irish Bank. Developers and board members colluded with each other to bring down an essential social regeneration project in an area badly in need of such rehabilitation. Who now will pay for that regeneration? Professor Niamh Brennan has said she must wait for a NAMA-type methodology to be introduced before she can obtain a valuation on the sites managed by the Dublin Docklands Development Authority, particularly the Irish Glass Bottle Company site. The authority invested in projects in which it had no reason to invest, including participating in major property speculation in Ringsend, and now it is the taxpayers who must bail it out. That is the type of decision-making that has brought us to the brink of economic disaster. The Minister, Deputy Gormley, and his colleagues should concentrate their efforts on cleaning up that mess.

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