Denis Naughten (Roscommon-South Leitrim, Fine Gael)

I thank Deputy O'Keeffe for sharing time with me. Over the past seven years many prominent economists, financial commentators and my colleague Deputy Richard Bruton repeatedly issued warnings about the property bubble which went unheeded and were even derided.

The Taoiseach and other Ministers have regularly reminded us that "we are where we are". We must not forget, however, that the current proposers of NAMA put us where we are today, and claim that they can get us out of the mess they created. Successive Fianna Fáil-led Governments worked hard to get us exactly where we are and to put the economy into its present mess.

Now the Government proposes that the taxpayer take on all the liability of correcting the wrongs of successive Fianna Fáil led Government and out-of-control and unregulated bankers. The Minister has made two arguments for this Bill, that we cannot renege on the subordinated bond holders and that NAMA will get capital flowing in our economy. These subordinated bond holders are in the main hedge fund managers who run high risk-high return funds. They gambled on the Irish economy, and now that they have lost, the Government wants us, the taxpayers, to refund their bet. That is what this Bill asks us to do.

The other stated objective and main goal of NAMA is to get capital flowing into the economy. It will not succeed in that. The proposals that Fine Gael has put forward to establish a good wholesale bank will achieve that objective. It will be at least the middle of 2010 before the acquisition of the assets by NAMA will have any impact on the lending capacity of the banks. There is no guarantee that these funds will flow into the economy and support existing employment or create new jobs.

The Minister for Finance claimed here last week that the 1.5% interest rate will force banks to lend. He has failed, however, to acknowledge that he has already lent money to the banks through preference shares, through recapitalisation funds at 8%, with warrants giving the Government the right to convert these to ordinary shares if the banks do not redeem them in accordance with the terms and conditions as stated. There is nothing in this legislation to prevent the banks from using the NAMA cash to redeem the preference shares, thus avoiding the payment of the 8% annual interest rate and ensuring that they make a tidy profit of 6.5% per annum. The incentive is built in to redeem those preference shares the Government has already taken.

As numerous speakers on all sides of the House have stated there is nothing in the legislation to stop the banks redeeming other longer-dated loans or more expensive financing already on their books. There is no guarantee that this money will make capital flow.

One of the most galling provisions in the Bill is that NAMA, and as a result the taxpayer, is taking over the cost of the repulsive bonuses and pensions paid to the directors of the banks who placed this country on the cusp of insolvency. In normal circumstances, when a bank sells a loan asset, or a participation in a part of a transaction on its books, to another bank, the buyer, NAMA in this case, would look for and expect to receive a portion of the original arrangement or up-front fees charged to the borrower for putting the facility in place. I have no doubt that with regard to all of the large facilities now up for transfer the original lenders had charged high up-front or arrangement fees which would have gone straight to the banks' profit and loss accounts. In the good times the banks would have generated large income from these fees and at least some of this was paid out in bonuses to senior management and directors of the banks. The Minister and NAMA must at the very least take such fees into account in pricing the assets and make an appropriate deduction from the price.

I understand the total cost of various fees, expenses of various kinds with the drawdown of the loans capitalised at time of drawdown, could be anywhere from €0.5 billion or more. That is a substantial sum in fees charged on these loans. To compound that insult for which the taxpayer must foot the bill the NAMA legislation provides for the payment of bank fees for managing those toxic loans to the banks which made them. The bankers will receive bonuses for managing those toxic loans so they will be paid on the double, having got their bonuses when they made the loans to developers. They knew at the time that they were risky loans and now we will give them additional fees and bonuses to manage those bad debts.

The biggest flaw in the Bill, from the point of view of the taxpayer, must be the omission of any provision to deal with the steps taken by developers to avoid their obligations given to the credit institutions by way of guarantee. We have all read in the newspapers over recent months about certain developers or their corporate entities transferring properties which were held in their sole names, or were perhaps jointly held with their spouses, to the sole names of the spouses. This has been brought to the attention of the Minister for Finance and his officials.

In the Companies Act 1963 there is specific provision for the transfer of assets prior to the liquidation of a company. This can go back to the preceding six months and covers any assets disposed of preferentially or any other assets that may have been available to the company. There is no provision in this legislation for the disposal of such assets. On 7 April the Minister announced his plan to introduce NAMA. Since then he has made no attempt to close off that loophole. Since 7 April, developers were given fair warning to transfer the assets out of their names, namely, those guaranteed assets that were given to the banks to ensure that they are not available to NAMA. They can then draw upon them when the liability arises at some future date. It is vitally important that changes are made to this legislation similar to those provisions made to the Companies Act 1963 to ensure these assets can be clawed back for the tax payer.

My final point relates to the issue of risk sharing. The Green Party claims that the provisions which were made regarding the new subordinated bonds will ensure that the banks will take part of the risk if the loan portfolio does not work out and if NAMA ends up losing out, as I believe it will. What really frustrates me is that the structure proposed in the legislation means that participating banks, some of which have good loans included with the bad, and responsible banks that have ended up in difficulties regarding some of their loans which are now to be put into NAMA, will be lumped in with the likes of Anglo Irish Bank and Irish Nationwide. These had extremely dodgy loans. The subordinated debt is structured in such a way that it is the overall performance of the total NAMA portfolio, not the performance of the individual proportions of that portfolio that have been handed or sold to NAMA by the participating banks, which will define the redeeming value of those subordinated bonds. It will cover up the bill for the likes of Irish Nationwide and Anglo Irish Banks whose bad loans must now be footed by each bank, even those that have been responsible. Surely a better way to ensure that the taxpayer is protected would be for the taxpayer to take out ordinary shares in the banks. If these then increase in value at least we will get some benefit from it.

See this speech in context