Thursday, 17 September 2009
National Asset Management Agency Bill 2009: Second Stage (Resumed)
2. The Government has not facilitated a review by the Oireachtas of independent analysis of alternative banking solutions which international evidence suggests are likely to be more effective at getting credit flowing, less costly and fairer for the taxpayer and less vulnerable to political manipulation and business lobbying.
I wish to refer to two matters, in particular, first, the capital requirements of AIB and Bank of Ireland and the new form Central Bank regulation will take and, second, the unwinding of the NAMA intervention and the macro-economic consequences of NAMA.
In the supplementary information document, the green book, it is indicated that AIB has stated in its accounts that it has a provision for impairment on property and construction loans of €2.2 billion. On the basis of NAMA purchasing loans of €24 billion from AIB, and, as the Minister stated, a possible 30% discount or impairment provision, an amount of €7.2 billion would be more appropriate for the provision rather than €2.2 billion. Effectively, there is a €5 billion shortfall in the provision in the accounts as presented in the supplementary information document. That €5 billion shortfall will also impact on core tier 1 capital.
The Bank of Ireland today suggested the discount would be closer to 24% rather than 30%. On the basis of what the Minister for Finance stated yesterday, on loans totalling €16 billion, the shortfall in the provision is of the order of €3 billion. There is a need for core tier 1 capital in terms of either senior debt or equity or both. The Minister has stated there is a preference for private investment to shore up the difference, on which I agree with him. If the bank is a commercial entity and in private hands, it will operate better on the international stage and be better able to finance the amount of money it needs to be able to continue to operate effectively.
With the increase in the banks' share prices overnight, there is the possibility of a rights issue to enable existing shareholders to have an opportunity to invest in the banks. I understand the Canadian Imperial Bank of Commerce has indicated an interest in investing in one of the banks. I would welcome an external private institution investing in the banks to strengthen and bolster their balance sheets, as this is needed. However, if a private investor does not come forward and there is not an offer of a rights issue, I would envisage the State intervening. Currently, it has an option on 25% of the shares. Another significant fraction of the shares should be taken up, with any warrants they may issue, on which a high coupon should be demanded. I would prefer if the State level of participation remained less than 50% on the basis that it appears from international commentary that a bank that is state controlled tends to have less of an option on the international stage in getting other types of senior debt onto its books.
The question arises as to who is responsible for ensuring this core tier 1 capital is put in place. I congratulate and wish Professor Patrick Honohan well in his job as the Governor of the Central Bank. I have great admiration for him. It is a tough job he has taken on, particularly in the circumstances that apply.
The DIRT inquiry took place almost ten years ago and I was a member of the committee. At the time we questioned Central Bank personnel and the associated banks about the cosy arrangement between one and the other. I vividly remember a person I questioned taking umbrage at the thought that there might be a cosy arrangement between these organisations. It turned out to be a pretty good television moment. That was part of the reason in the period immediately after that people took more seriously the questions they were being asked and the tune of the people responsible in the Central Bank and the associated banks changed dramatically at that stage.
We have now the question of this new core tier one money that is needed. I expect that Professor Honohan will insist that timely action is taken by the banks to attain that level. It is his responsibility and I expect he will complete that task speedily.
There is also a need to set out a code of lending. The Taoiseach stated today that a statutory code of lending would be put in place not only for the SMEs and corporate lending, but also for mortgages. There is a need to put codes in place for consumer lending and property and commercial lending. We cannot have a system again whereby 100% loans can be given on property to first-time borrowers, especially at a time when interest rates are so low that such people will be caught in a terrible squeeze as soon as interest rates go up.
The Canadian banking system came out pretty well from the turmoil that was created, in particular by the Lehman's situation. To a great extent there was a large down payment and the loan to value ratio was at approximately 75% or lower. In hindsight, which gives 20:20 vision, it was crazy to have a loan to value ratio of 100% or higher.
The establishment of a central banking commission has been proposed. I hope we will never again be in a position where we question that commission in terms of any cosy arrangement between it and the banks. I hope it will take a fully independent stance and act above anyone's business interests and politics and only in the interests of the country.
The second matter to which I wish to refer is the unwinding of NAMA. This is the redemption of the bonds to be issued by the Government. I would like that done in a manner that will give rise to little or no economic perturbation in the course of the unwinding. That will take a number of years. The Minister has stated that it will take up to ten years, and I agree. I was looking at a report from the International Monetary Fund recently, dated 31 July this year, which includes a graph suggesting that it will take ten years. More than half of the disposals will be in the years eight to ten. We are looking at a very slow build up of the unwinding of the NAMA loans over a lengthy period of time. That is to ensure that it does not in any way disturb the prevailing economic conditions and that there is no spike in the economy as a result of that unwinding.
The other interventions by the Government in the banking sector include the guarantee, the nationalisation of Anglo Irish Bank and the recapitalisation of AIB and Bank of Ireland. It would be expected that those interventions would be unwound earlier than NAMA. In regard to the guarantees it was suggested that it would happen in September 2010 but I understand now that additional years have been added. I am not sure of the details but I expect that it will be between five and seven years in total.
I am delighted the Bank of Ireland has raised funds which do not come under the scope of the guarantee, as the Minister announced yesterday. That means the Bank of Ireland will be paying less fees to the Government for that guarantee and the other banks involved in the guarantee will over a period try to get the debt they borrowed out from under the guarantee so that the amount of fees that are paid are minimised. As far as the Government is concerned, while we are grateful for the fees that arise on account of the guarantee, we would like to see that get down to zero as quickly as possible.
I would like the Minister to set out the likely phase out programme of the four major interventions. I would also like him to set out the projected cost-benefit to the Exchequer of these interventions. Just as I mentioned the fee in regard to the guarantee, in terms of the recapitalisation we have the 8% coupon on the warrants and, as I mentioned last night, if the options were converted from preference shares to ordinary equity, even at this point in time on the basis of the market capitalisation at 5.30 p.m. yesterday I reckoned that approximately €1.3 billion would be made on the €7 billion that was put in, but that would have increased by another €0.5 billion overnight because of the increase in shares. There is significant potential gain to the Exchequer from the recapitalisation scheme. We are just wondering when that will happen.
It is incumbent on the Minister to give some indication to the public on his intentions regarding Anglo Irish Bank and whether it will remain forever as a nationalised bank or if it is the Government's intention to turn it into a good bank again and sell it off on the market. It is important that those interventions and the results of them are set out.
I acknowledge that the phase out will depend very much on the economic recovery progress in the years ahead also, in so far as when a phase out takes place will depend on how far advanced we are in the recovery process. People wish to know that there is light at the end of the tunnel. It would also help people to manage their expectations and perhaps change their mood from pessimism to optimism, from a savings mode to a spending mode, with the result of bringing forward economic recovery and creating jobs. It is important to set out the final plan to show that the Government is giving leadership. Economic circumstances will change and when they do, the basis on which the plan is predicated will change. The people are aware of that. A revised plan based on the changing circumstances should be then produced as soon as possible. It is important to set out the longer term macroeconomic situation in regard to those interventions based on the best estimate of the economic recovery over the timescale of the plan. That would redevelop trust in the Government. That is something the Government needs and is due.
I congratulate the Minister for Finance, Deputy Brian Lenihan, the Attorney General, Paul Gallagher, and all of the other people who have worked so diligently and put in so much time, effort and hours into producing a formula that will return the banking system to a situation whereby it will have a credit mechanism in place so that it will be able to develop and lend money and thus fix the banking system. With all of the interventions to date, the banking system is now fixed. We have to get on with the public finances, the Lisbon treaty and the other matters to ensure that this country is back on an even keel and is growing at a reasonable rate in the not too distant future.
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.
Most people purchase several books before going on holiday. This year I bought an interesting book entitled Banksters, by David Murphy and Martina Devlin. I will be happy to pass it on to the Tánaiste. The book sets out to describe how a "powerful elite squandered Ireland's wealth" and is essential reading for any Minister.
The book sets out the time line from March 2007 when house prices began to decline nationally through to 29 September 2008 when bank shares fell sharply and on to the introduction of the NAMA initiative on 7 April 2009. It references a statement by Groucho Marx which sums up rather well what the Government is doing with this legislation: "Politics is the art of looking for trouble, finding it everywhere, diagnosing it incorrectly and applying the wrong remedies." I hope NAMA does not prove to be the wrong remedy.
The book to which I referred sets out how the property market was allowed to become dangerously overinflated. Bankers fuelled this bubble by throwing out the rule book on lending. As Deputy Hogan said, decisions by the former Minister for Finance, Mr. Charlie McCreevy, and other cavalier politicians led to the near invisible financial regulation and reckless tax breaks that made it all possible. This is summed up clearly in the book and I recommend it to the Tánaiste.
There have been consequences to the delay in introducing this legislation. It has afforded some of those most exposed by this legislation ample time to cover their tracks. Rather than pursuing some of these so-called zombie developers, the banks merely rolled up the interest. This will allow them to seek a greater payment from NAMA to reflect the apparent higher value of their assets. This lack of urgency indicates how the process thus far has been handled poorly by the Government.
We are told that the primary objective of NAMA is to ensure that the banks resume lending to businesses and individuals. I urge a note of caution in this regard. The banks will try to reduce their loan-to-deposit ratio, which is currently at some €1.65 for the Bank of Ireland, to a prudent €1 lent for every €1 deposited. In other words, there is no expectation the banks will be in a mood to lend very generously in the times ahead. The commercial managers who made the decisions in the past to lend money are the same people who are making the lending decisions now. Having been burned once and subjected to fierce criticism, they will be inclined towards caution. Although the banks will receive €54 billion through NAMA, this does not guarantee there will be lending on the same scale as heretofore and that every small business will be saved. It is important to recognise that.
The banks will not in future be willing to participate in the types of competitive practices that featured in the past. Some of the more responsible banks were essentially forced into a position of reckless lending by the reality that a potential customer who was refused credit in their institutions could simply go directly to Anglo Irish Bank to secure it. Any such loss of custom would be seen as a failure. As a result, all banks were effectively in competition with Anglo Irish Bank. It is important to bear in mind that the issue of liquidity, as described by Dermot Desmond in an excellent article in one of yesterday's newspapers, may not be resolved by this provision.
Looking to a recent international example, the Resolution Trust Corporation in the United States was established in the aftermath of the savings and loans crash in the late 1980s. This body proved to be a loss-maker in the long run.
I wish to share time with the Minister of State at the Department of Foreign Affairs, Deputy Peter Power.
I welcome the opportunity to speak on this most important legislation. Some commentators have described this Bill as perhaps the most important legislation to have come before the House in a generation. There is no doubt that we must get it right, not for our own sake, as legislators, but for the sake of our economy, the enterprises that are the engine of the economy and the workers and families and indeed all citizens whose standard of living is so closely linked to Ireland's economic health.
My focus is on how this Bill contributes to economic recovery in support of enterprise. My colleague, the Minister for Finance, in his address to the House yesterday, set out in detail on behalf of the Government the main provisions of the Bill. I do not propose to repeat what the Minister said but as Tánaiste and Minister for Enterprise, Trade and Employment, I will set out what I see as the key rationale for this Bill and the reasons it must be supported.
Sustaining and developing enterprise and jobs remains at the top of my agenda and that of the Government. That is the starting point for all our efforts. Since 2000, Ireland has been losing ground in terms of international competitiveness. The recent economic contraction has brought real challenges - national income is declining rapidly and unemployment is rising sharply. However, there has been a modest improvement in cost competitiveness. Export-led growth is a key part of any sustainable longer-term strategy to maintain living standards and secure long-term prosperity. This will require a substantial further improvement in our international competitiveness. This will mean bringing our cost base into line with market reality and building our skills base, infrastructure, technology and ability to operate as a smart, open, trading economy in an increasingly complex world. The National Asset Management Agency has a key role to play in this by addressing the reality that unless problem assets on the banks' loan books are dealt with and are seen to be dealt with, banks will be unable to attract resources to resume sensible lending to enterprise.
The people running our small and medium size enterprises need no reminding of the scale of the unprecedented challenges facing the business community. The severity of the international financial crisis and our particular exposure to it is well known. International and domestic demand and investment has suffered. Over the past year, exporting businesses have been particularly badly hit by the fall in the value of sterling against the euro. These are the toughest of times for Irish businesses.
The Government has taken action on a number of fronts to address these issues. It has provided €100 million for an enterprise stabilisation fund, under which Enterprise Ireland may give up to €500,000 to viable companies with robust business models that are facing difficulties as a result of the current economic environment. The Government has also introduced arrangements to reduce the payment period by Government Departments to business from 30 to 15 days. Last month, I announced a €250 million scheme to protect up to 27,400 vulnerable jobs in the productive sector of the economy. The temporary employment subsidy scheme will provide a subsidy of €9,100 per employee over 15 months to qualifying exporting enterprises in the manufacturing and-or internationally traded services sectors.
Another issue, namely, access to and the cost of finance, is critical for Irish businesses, particularly indigenous firms which cannot easily access credit on international financial markets. There are real concerns that the turmoil in global financial markets and exposure of Irish banks to bad loans is affecting Irish firms in terms of their ease of access to finance and its cost. It is essential that viable businesses, particularly small and growing businesses, are not hampered by reduced access to credit. Our businesses need credit to be available in order that they can invest in their people and equipment, source supplies, grow to scale, invest in marketing and promotion as well as to help fund the supply of goods and services that input into their products. They also need credit to be available to their customers in order that they can purchase those products. If we want this period of contraction to be quickly succeeded by an upturn, this is the normality to which we must return. I share the view of the International Monetary Fund that delays in fully relieving the banks of their impaired assets will delay a return to normal functioning.
The issue of access to credit for small and medium enterprises has been raised repeatedly at recent meetings with business representative organisations, such as the Small Firms Association, ISME and Chambers Ireland. The messages emerging from the available data certainly add to the concern. We have seen negative growth in private sector credit in almost all sectors. The volume of new business loans and overdrafts to non-financial corporations is down. Total lending to the small and medium size sector has remained relatively static. Bank reports to the Financial Regulator show that while new business lending is taking place, it is at a lower rate than last year. In terms of the cost of credit, average retail margins for most lines of credit have been above the euro area average.
The Government has taken action in advance of the establishment of NAMA. The banks' recapitalisation package of February last contains a commitment from the recapitalised banks to increase their lending capacity to small and medium size enterprises by 10% in 2008. Small and medium size enterprises are now covered by the code of conduct on business lending, which will promote fairness and transparency in the treatment of the small and medium enterprise sector by the banks and should facilitate access to credit for sustainable and productive business propositions.
Allied Irish Banks, Bank of Ireland and Ulster Bank will provide funding for small and medium size enterprises on foot of the €300 million facility provided by the European Investment Bank to assist developing small and medium size enterprises. Last May, the Minister for Finance and I established a credit supply clearing group with bank, business and State representation. This group is responsible for identifying patterns of events where the flow of credit to viable businesses appears to be blocked and seeking to identify credit supply solutions relating to these patterns.
We have published the Review of Bank Lending to SMEs, the Mazars report, which examined credit availability and recommended appropriate action. Follow-up work on implementing the recommendations in the Mazars report is ongoing through the work of the credit supply clearing group. To assist and complement the work of the group, the Minister of State at the Department of Enterprise, Trade and Employment, Deputy Billy Kelleher, held eight regional meetings over a two week period during June and July to discuss with representatives of business, banks and the State sector their experience of gaining access to bank credit at local and regional level. All these initiatives will help ensure that viable Irish enterprises have available to them the credit required to protect and grow their businesses.
We must, however, address one other fundamental problem. As my colleague, the Minister for Finance, has stated, concern about the impact of risky loans on the banking system continues to create funding difficulties for the banks and restrict the flow of credit. Every euro lent by a bank to a customer or an enterprise must be drawn from deposits or borrowed from somewhere else. Irish banks rely heavily on financial institutions abroad for funding. Uncertainty surrounding the scale of losses on the banks' balance sheets has made this funding more difficult and costly to attract. Added to this, uncertainty about the losses for the banks that will result from these loans leads to nervousness about adequacy of their capital. This can result in banks not providing the credit to enterprise that is necessary to support economic recovery.
The agency proposed in the Bill will lead to smaller, cleaner and better funded banks which can focus on their core, profit generating business, lending to the productive economy at a margin appropriate for the risk involved. NAMA will do this by buying the land and development property loans and certain associated loans from the banks at prices well under the current book value. These loans will then be managed by NAMA over time to achieve the best possible financial return for the taxpayer. Concern for taxpayers and enterprises is at the heart of the Government's approach.
Enterprises must be assured that the banks will be given specific direction as to what is expected of them. The Minister for Finance made it crystal clear yesterday that the banks should be extremely grateful for the continued support and forbearance extended by citizens and, in return, they are expected to provide appropriately risk adjusted credit to businesses to protect and create jobs.
I will say it often enough.
I am aware of the markets' reaction today to the Minister's speech, in particular in relation to our two main banks. It is not unexpected that a period of volatility in share prices would follow a significant announcement such as yesterday's and it will be a number of days before its full effects are visible. While the publication of half-year results at midday today by one institution will have had an impact, the initial increase in share values may be interpreted as an expression of confidence in our ability to take the decisive action necessary to deliver a restructured and cleansed banking system which can support recovery. While the publication of half-year results at mid-day today by one institution will have had an impact, the initial increase in share values may be interpreted as an expression of confidence in our ability to take the decisive action necessary to deliver a restructured and cleansed banking system which can support recovery.
There is an urgency associated with this legislation. Economic recovery appears to be emerging in parts of Europe and in the United States. The UK, Germany, the US and others have all established schemes to deal with impaired assets. These schemes are designed to meet the specific problems each of these countries faces. First, Ireland must be able, and be seen to be able, to devise and implement approaches to deal with problems affecting our financial and credit system. Second, we must devise an approach which frees our banks of higher risk loans, so we are in a position to benefit from that economic recovery emerging in the United States and Europe. Without the functioning banking and credit systems that NAMA is to create, Irish businesses will not be able to grow and develop their products for export to these, our main trading partners.
The Government has acted consistently and coherently to address the current financial difficulties and chart our way through current difficulties in order to be ready for the upturn when it comes. Central to our success is the introduction and passage through the Houses of the NAMA legislation currently before us. The successful passing of the Lisbon treaty referendum is also critical to cement our central position within the European Union.
We must consider and act on the McCarthy report recommendations and those of the Commission on Taxation, so that they feed into the framing of the upcoming budget. Hard and unpopular decisions will be taken to bring our public finances into better order and pave the way for a return to economic stability. Successful outcomes of these measures will demand that the Government, businesses, banks, the public and all other stakeholders accept the gravity of our situation and work together to ensure we continue on the road beyond the current crisis and on to recovery. By working together we can get through the current difficult economic environment. We have done so in the past and there is no reason we cannot do so again.
Like the Tánaiste, I am delighted to have an opportunity to contribute to what history will, no doubt, record as being perhaps the most important debate to have occurred in this Chamber for many a long year. There are those who say this Chamber lacks relevance or that it does not debate issues which impact directly on the lives of ordinary citizens, but this important discussion does not bear out that popular perception.
Our recent political history is littered with examples of where we have not faced up to really difficult problems. We have shied away from them and, more often than not, have taken the easy solution. This crisis, however, requires an altogether different response. It requires really decisive action, but more importantly, it requires a workable solution no matter what one's ideological perspective. It also requires the Government, of whatever composition, to act with real courage and conviction to produce the right results. Our history also shows us that the most workable solutions to the problems and crises that face this country are often the least popular. In addition, the most popular solutions are often the least workable, which is the case concerning some of the proposed solutions to the crisis in which we find ourselves.
As a relatively young Member of this House, I deeply resent the questioning of my motivation, or of anybody's here, concerning the proposals that have been brought forward. The innuendo that we are all part of a grand conspiracy or cosy cartel to protect vested interests in this society is, frankly, unworthy of those making the accusations I have heard across the floor of this House. We should be mature enough to engage in a debate about a crisis facing the country without resorting to that level of debate. We should also recognise that this debate is taking place not just in an Irish context but also in a global one. Virtually every developed economy is facing a distressed banking situation in one shape of another. The situation in the United States arose from complex derivatives, while distressed assets in Britain were caused by other reasons. Ireland's particular situation in the banking sector has been caused to a large extent by greed and the failure of the regulatory authorities.
As regards the solution, the Government is proposing a number of matters. If we are to understand the nature and importance of the guarantee which we installed and undertook almost a year ago - which practically every other country in Europe followed to one extent or another - its real effect was a clear national statement that we were not prepared to let the Irish banking system fail. If we were in any way to weaken our resolve in that important national policy position, it would certainly cause enormous difficulties for our banking system.
As regards the Fine Gael proposal, there is a seductive attraction in the idea that maybe we should punish the bankers and let those people who invested in our banks suffer a little more. However, the implication in the guarantee is that we will protect our banking system. That will involve difficult and unpopular policy choices, but not to do so would be the ultimate disservice to taxpayers.
We share common objectives across the floor of this House. We want to have a modern, functioning and well regulated banking system that serves the real economy. The question we must resolve, however, is what solution works. Three solutions have been proposed. The Government solution is an asset management agency which seeks to resolve a current crisis in a way that has worked in other jurisdictions. The Labour Party proposal for nationalisation, blanket or otherwise, has major problems as far as we are concerned. Fine Gael's so-called good bank - or bad bank, certainly if it does not work - has major flaws. I wish to address the problems associated with the proposed solution by Fine Gael. In his speech this morning, the Fine Gael leader, Enda Kenny, pointed to the French financing corporation, the SFEF, as an example of a new and successful wholesale bank, along the lines of what his party is proposing. Deputy Kenny does not seem to realise that if a similar entity were to be brought into force here it would be completely redundant. By citing the French example with approval, Fine Gael is effectively trying to piggy-back on a solution which does not address the real issue in the Irish situation, namely, the distressed loans on balance sheets of Irish banks. The SFEF model simply does not do it and to pretend otherwise is walking away from reality. Why does it not do so? The SFEF is effectively a pass-through financing entity between financial markets and the French banks, which was established in 2008. The SFEF raises funds for the banks by selling government-guaranteed bonds on financial markets, and lending those funds to the banks. French banks, of course, can issue their own bonds in the normal way, but the difference here is that the French do not have a state-guaranteed scheme like ours, and these bonds are not government guaranteed. Therefore, the SFEF, which Fine Gael quotes with approval, is merely a mechanism to provide a state guarantee to normal commercial banks' funding. The funding of Irish financial institutions is currently guaranteed by the State under the scheme introduced last September. That is the essential difference between the French and Irish situations, and it is why Fine Gael's attempt merely to copy what is a successful model would not solve the Irish problem. I have not heard one economist saying that it addresses the major distressed assets on the balance sheets of Irish banks. However, there are other differences between the French model and Fine Gael's proposal.
I would like to hear the Deputy's response to what I am saying in a moment. Fine Gael's bank would apparently obtain funds from the ECB, while the SFEF raises funds from wholesale markets not from the ECB. That is a critical difference between Fine Gael's proposal, which I suggest is a copycat model, and the reality of the French model. Fine Gael's bank would be also State-owned, whereas the SFEF is 60% owned by the French banks.
Deputy Kenny also referred to the majority state-owned bank, Credit Lyonnais. The French Government set up the bank in 1995 and the Deputy implied that the fact that bank recorded losses suggested NAMA would be wrong. This is a patently incorrect analysis of the French situation. At best, it illustrates a deep misunderstanding on the part of the Deputy and, at worst, a shallow attempt to spread fear. The French bank bought bad assets at a nominal discount with the intention of making losses while clearing up a particular situation.
Whether one agrees with Fine Gael's fundamental statement on national policy, we will stand behind our banking system and bring in a workable model to repair that system while the essential and critical flaw in Fine Gael's policy is it departs from our model and leaves us open to potentially being unable to raise money on the international financial markets. If it were introduced, AIB and Bank of Ireland would find their ability to raise money would evaporate in the morning.
I would like to raise a number of questions with the Minister for Finance on behalf of business people trying to plan their survival in the real economy. I would be obliged if the Minister when he replies to the Second Stage debate would address these acute concerns of people who are trying to stay in business and retain their workers in employment. The debate for the past number of weeks has been dominated by property and, not surprisingly, the valuation of the properties, in whatever stage of development, that underpin the loans being transferred to NAMA but what about the real economy?
The banks have frozen credit. They may be advertising "business as usual" but all they are doing is advertising. Small business owners have been hanging on waiting for the Government. They have been borrowing from relatives; they have not been paying or are delaying paying their creditors; they have been using up their savings; and their overdrafts have been cut back or eliminated. The banks do not tell the truth. Whatever the Government was to come up with almost a year after governments in the UK and the US took decisive action, it was hoped it would inject liquidity into the system and normal business could resume.
NAMA is the Government's response and, although speaking the language of compromise, the Government has set its face against any other response. No mechanism in this Bill offers any confidence to SMEs and business generally that the taxpayer-guaranteed ECB funding will ever get to small business. There is no mechanism and there are no guarantees. The chronic, if not technically insolvent, condition of our banks together with the impact of the 30% discount makes it probable that the banks will cash in the taxpayer's IOUs to correct their loans to deposits ratios. At all stages since July 2008, the banks have been economical with the truth and, on occasion, downright misleading. If the 30% discount is applied to the truthful balance sheet realities of the banks, they are most likely to use the ECB funding themselves rather than start lending again in the normal way.
The banks will revert to doing what they do. They will act in the best interests of their shareholders first. Twelve months ago we were all agreed, that was "the end of the new banking model and the end of enormous salaries and obscene bonuses". Let us have a look at what is happening on Wall Street and in the City of London. President Obama, of whom the Minister for Finance is so enamoured, and Prime Minister Brown have both publicly expressed their bitter frustration and disappointment that the old practices are creeping back. It was cringe making to hear the Minister plead with the banks yesterday after the biggest bailout in history. He stated:
The banks should be extremely grateful for the continued support and forbearance extended by the citizens. In return, the Government expects the banks to play more than their part in the economic recovery of the State by providing appropriately risk adjusted credit to businesses to protect and create jobs. Our citizens deserve nothing less.
The Minister is too clever a man to believe that the banks will pay the slightest attention to his pleading. As far as being grateful to the citizens goes, what a load of nonsense. Sean FitzPatrick told RTE he was grateful for the guarantee of 29 September 2008 but he said Anglo Irish Bank was a thriving bank in an over-regulated environment.
The two Brians become incandescent if reminded of the organic links between Fianna Fail, developers and the banks. They can relax because I will not go down that road. Their only motivation, they say, is to fix the banks and get them lending again but will NAMA do that? If that is the main purpose – I agree it should be - why are we imposing a mortgage of, according to Deputy Bruton, €34,000 on every family in Ireland unless we are certain that normal lending will resume?
The evidence is that the Irish banking model has failed. The model developed in recent years involving the lending of money based on security. The traditional banking role of lending money to businesses where a view must be taken on the strength of the business and the acumen of the business people involved essentially no longer exists. Current bank management and senior staff are not equipped in today's market to lend to businesses on this basis. The banking system needs a fundamental overhaul and the introduction of experienced businessmen and the reintroduction of traditional banking skills to equip the banks to lend into the real economy in the current Irish economic situation.
It is not only SMEs who are sceptical about normal lending being freed up by this Bill. I refer to the verdict of the financier, Mr. Dermot Desmond.
I have quoted him often in the House. I was a Member when no financial measure could be put through the House without Mr. Desmond being consulted about his opinion. There was a time I thought he was more powerful than the Minister for Finance of the day.
I have often quoted Mr. Desmond. Regarding this legislation, he stated:
Nama as conceived will do untold long-term damage to Ireland Inc. It will result in paralysis for decades to come. Ireland's key focus must be to get the economy moving again and start to promote the real economy. Without this tax revenues will continue at the current low levels and unemployment outside the public sector will continue to grow. Everything must be done to avoid ongoing stagnation.
If I had the same antipathy to taking the banks into public ownership, as articulated by the Government, I would burn the midnight oil studying Mr. Desmond's proposals for an alternative to NAMA. Mr Desmond acknowledges where the blanket guarantee has landed us. He points out that the shareholders of the banks and their bondholders should suffer the cost of failure. These bondholders are private institutions, including hedge funds, which took a calculated business risk in subscribing to these bonds. Why should they not be required to share the cost involved? I do not believe that forcing these institutions to engage in such a renegotiation of their bonds will cause difficulty to Irish banks raising funds in the future.
We cannot further recapitalise the Irish banking sector without first entering into discussions with these bondholders to agree a significant write down in the amount of moneys owed to them for which they might be compensated in terms of equity if that was considered appropriate. I am not advocating defaulting and do not want to be construed as advocating it but they should take their share of the pain. It was a calculated business risk on their part and we should enter negotiations to cause them to write down the moneys owing to them and take their share of the pain.
We are still a sovereign Government and no Minister, including the Minister for Finance, has come in here and explained to the House why, on day one, the Government included long-term subordinated debt in the terms of the guarantee. It was remarkable. It was picked up very shortly afterwards on these benches by my party leader, Deputy Gilmore, and my colleague Deputy Burton, but we have never had an answer as to why subordinated debt was included.
Mr. Desmond's proposals at least contain a built-in incentive to get credit flowing again. He said:
The Government could achieve exactly the same impact by €60 billion of bonds issued by the banks themselves, with the Government underwriting them. The Government can then charge a completely transparent fee for the use of this guarantee. This leaves all the risk of the existing loans with the existing capital providers and could be implemented in the morning without quangos, complicated legislation or additional risk.
If Mr. Desmond was handling this himself I doubt if he would settle for a transparent fee, but we could deal with that. The taxpayer would have to get a substantial equity position in return for the substantial risk that they would be taking in guaranteeing this new debt to be issued by the banks.
If it is true that Mr. Desmond's input has been with the Department of Finance for a number of months, as Deputy Kenny said this morning, it bears out that once the Government settled on the NAMA approach it would not entertain alternative proposals, contrary to the public protestations of Ministers. Instead the Minister embraced a proposal from a private consultant with no particular qualifications in banking. However, he did have experience as a stockbroker and as a director of a development company.
The process has legal advice from a company of solicitors which is also advisor to one of the banks and several property developers, and the valuation process will be guided by an advisor whose previous role was selling property to and for developers. NAMA is a particularly Irish solution. A Government which says it is opposed to nationalisation establishes a State quango on the advice of a former developer and stockbroker which will be advised on valuation by a man who helped create the bubble and advised by a company of solicitors with so many Chinese walls that their offices should be ringed by rickshaws.
Whatever the differences are in the House between the parties, there are some questions to which we need answers. We need answers on what the plan is for Anglo Irish Bank and who will write the cheque to whom on the interaction between it and NAMA. Is one wing of the State writing the cheque to the other wing? How in the name of God was it permitted for a small bank, captured by friends of Fianna Fáil, to grow and grow like topsy until it threatened the entire banking system?
We have never had an explanation-----
I am puzzled as to how anybody could dispute what happened in Anglo Irish Bank, where a small private bank was allowed to grow and grow until it threatened the entire banking system. I will leave out the friends of Fianna Fáil if that is what offended-----
I will leave that out.
I also wish to raise a question under section 218, which concerns the Minister for Finance trying to insert himself between the Comptroller and Auditor General and his reporting to the Committee of Public Accounts or to this House. I remind him that the Office of the Comptroller and Auditor General is a constitutional office and I do not understand how the Minister can bring in a provision that permits him to censor the Comptroller and Auditor General's report. It is a breach of the constitutional convention and makes the Comptroller and Auditor General an agent of the Executive rather than the Dáil, as the Constitution envisages.
I also wish to raise the question of democratic oversight of this proposal. It is one of the areas in which the Minister, Deputy Brian Lenihan, has used his conciliatory skills. He said he would agree to many things before the debate started. It is plain he has no intention of agreeing to any of them, but he has the public convinced that if only the Opposition would come into the parlour the problem would be solved and that we have no idea how agreeable a chap he is. I want to hear the Minister's views on democratic oversight.
How did he manage to convince the public that he would chose the Honohan amendment? He did not do anything of the kind, but Patrick Honohan is now Governor of the Central Bank and, as such, is muffled and cannot speak out for himself. The Minister, Deputy Lenihan, persuaded the members of the Green Party, who are gullible enough to swallow anything to try and stay where they are, that he would chose the Honohan amendment, which has been explained in the House. Both payments envisaged by the Minister are going to the banks and not the shareholders, which keeps more risk on the balance sheet of the banks than is desirable.
Deputy Ardagh referred to the experience of the DIRT inquiry, the Central Bank and the Financial Regulator and, ten years later, we do not seem to have learned anything. Fianna Fáil will say it learned something. I heard my constituency colleague the Minister of State, Deputy Conor Lenihan, telling RTE radio about how much he enjoyed the DIRT inquiry when he was on it and all he learned. He was not within an asses' roar of the DIRT inquiry and never had anything to do with it, but that did not stop him.
Whatever the difference between the parties about our respective approaches, there is no doubt, as Deputy Deenihan said earlier, about the momentous character of the decision that has to be made. No budget that has ever come before the Oireachtas and no economic plan or debate in this House has ever compared in significance to the NAMA initiative, as the Minister of State, Deputy Power, has said. It is the biggest gamble ever sponsored by an Irish Government.
There is enormous risk attached to whatever we do and the comprehensive all-embracing character of the blanket guarantee into which the Government was railroaded on 29 September means we are already monstrously exposed. Therefore, there is risk attached to whatever course is taken. The main issue to which the House must turn its attention is how to minimise the cost to the Exchequer while at the same time ensuring that the banks begin to lend again.
It is probably the case that the financial and banking crisis has changed the rules of the game even if we do not yet recognise it. We have probably reached a juncture that threatens fundamental structural change in politics. The coping classes have never felt so challenged, bereft of leadership and disillusioned with politics. Retired people have watched their savings evaporate and their pensions threatened. Many homeowners are in negative equity and more and more face repossession. Professionals are losing their livelihoods as never before, certainly not since the 1930s. Small companies are struggling to stay in business. Banks are not lending and jobs are being lost.
These people have no confidence in this Government. They do not trust the members of the Government, as they believe Ministers coasted in the good times and are now paralysed in the bad times. The people have made up their minds. They agree that the same faces in the Government are directly responsible for the fact that more economic damage has been done to Ireland than to any comparable country. Our Ministers lived on the back of the hog during the boom times, but they headed for the bunker when the bubble burst. They were asleep at the wheel. A small bank was captured and allowed to grow until it threatened our entire banking system. No one shouted stop. The economic crisis had taken hold before the Government woke from its slumber. It has failed to explain the dimensions of the crisis to the people. It is paralysed by the knowledge that it is directly culpable for the fact that the recession is worse in Ireland then anywhere else. The rules have changed. People are looking for leadership and engaging with politics once more. They want to know there is hope for the future. They are sick of stroke politics, golden circles and hereditary seats. They may not yet be persuaded that either or both of the Opposition parties have earned their confidence, but they are certain they want shot of this Government.
There is a structural shift taking place in Irish politics. The old paradigm has broken down. Fianna Fáil believes that if it can survive the next 100 days and keep its head down thereafter, economic recovery elsewhere in the world will eventually restore its God-given mission to govern.
During a radio debate with me the other morning, the Minister, Deputy O'Dea, disputed that there is a recovery taking place elsewhere in the world. He did not know about anything else that was going on because he had forgotten to bring his BlackBerry with him from Limerick. The era of excess based on debt is over. Twice in this generation, Fianna Fáil has brought this country to the edge of ruin.
I do not believe the Bill represents the way to national recovery. It may sort out the bad debt problem, but it will not get liquidity flowing to the real economy. There is still time to rethink this measure. A better proposal will not save Fianna Fáil, but it may save our economy.
Everyone accepts that the severe recession which has affected the world since September 2008 was initially sparked by the financial crisis in the US. Similarly, any sensible person will accept that the first myth propagated by some of our opponents - that this country's recession is an entirely Irish creation - is a load of rubbish, given that Ireland exports over 90% of its produce and therefore depends greatly on world markets. The Government's response to this severe crisis has been sensible, steadfast and mature. If it had not introduced the bank guarantee scheme on 29 September 2008, there is no doubt that there would have been a run on the banks the following day. While Fine Gael had the courage to support that scheme, the Labour Party, as usual, flunked it when the heat came on. The Credit Institutions (Financial Support) Act 2008 provided for the banks to get some support in the form of a financial injection. The Financial Emergency Measures in the Public Interest Act 2009 facilitated certain emergency reductions in public expenditure. This Bill - the National Asset Management Agency Bill 2009 - represents the Government's latest response to this crisis.
It is fair to say that the Government, through the Oireachtas, has put in place a comprehensive legislative package in response to this serious crisis. With the exception of Fine Gael when it supported the bank guarantee scheme, the Opposition has been most unhelpful at every stage in this process. It has been destructive of the national interest. Opposition Deputies have consistently talked Ireland down, in comments which have been reported by financial media throughout the world. One has the impression that they are so desperate and hungry for power that they would say anything, even if it damages Ireland, if it increased their chances of getting into power. I do not think that is how one would describe a responsible Opposition.
I do not shirk from saying that the Bill discussion has had to be introduced because the banks and the financial regulators failed their shareholders, their customers and Ireland as a whole. Opposition Deputies constantly accuse the Government of having embarked on some kind of spending spree during the term of the last Administration and up until this crisis. They do not seem to remember their own speeches, even though they are freely available on the record of this House. During the debates on successive budgets, the Opposition berated the Government and the Minister for Finance of the day for not spending more money. They always wanted more to be spent. If one examines those budgets, one will find that when the current Taoiseach was Minister for Finance, he put the brakes on Government expenditure. The large capital sum that was built up by successive Governments since the establishment of the National Pensions Reserve Fund was available when it was needed to rescue the banks. Is there anyone in this Chamber who would prefer if we had spent the moneys in the fund several years ago? One of those who thinks the funds should have been spent on more schools and hospitals, etc., happens to be the finance spokesperson of the Labour Party.
If we had listened to the rubbish she talked over a number of years, the larder would have been empty when the current financial crisis came to pass. There would have been no money in the kitty to come to the rescue of the Irish banks.
That is an example of the Labour Party's imprudent management style. It is not Fianna Fáil's management style, however. We will always be careful with the national finances. We will always do what is right for the country, no matter what silly Opposition spokespeople say. That is the truth.
NAMA is a sensible and logical solution to the problems of insolvent banks at a time when the property market is temporarily depressed. I say "temporarily" because, unlike some Opposition Members, I have great faith in Ireland and believe Ireland has a great future.
I remind those who have written off Ireland in the past that Ireland is well capable of bouncing back and making further progress. Our education system is the envy of the world. We have a set of highly talented people, many of whom are unemployed at the moment, unfortunately. We have the English and Irish languages. We have a stable society with a well respected legal system. We have a vastly improved infrastructure. There are many positive things in Ireland. If we are to achieve NAMA's primary purpose, which is to restore growth to our economy, we have to take toxic debt from the banks and ensure it is properly managed by a professional agency.
It does not suit Opposition Deputies for us to free up the banks to provide money to business, commerce and industry and get employment going again. They would prefer high unemployment and civil discontent, so they could get up on every trailer to slag off the Government. Deputies on this side of the House want banks that work and industries that grow. We want a successful economy and to restore the full employment that existed a mere two and a half years ago. We believe it is possible to achieve those goals.
The Opposition has failed to realise that NAMA has the support of the European Commission and the IMF. In June 2009, the IMF noted that the policies were right but that determined execution of NAMA and the Government's budget plans were required for recovery. That is a ringing endorsement of the NAMA project. I would like Opposition Members to work with the Government to restore our competitiveness and balance the budget but whenever we ask them for concrete plans for savings, they are short on answers.
The reality is that we are in difficult times and the Government is determined to see this project through.
Every morning and evening on the radio and television we hear from Opposition Deputies that the NAMA proposal represents a bailout for builders. Why are they not honest enough to acknowledge that builders will retain full liability for every euro of their loans? This plan will not write off even €1 of developers' debts. If Opposition Deputies were willing to engage in proper and meaningful debate, they would acknowledge that fact. I commend this Bill to the House.
I rarely agree with everything my colleague, Deputy Mulcahy, says but I certainly concur with his remark that the global financial crisis contributed to the difficulties we are currently experiencing. In fairness to the Labour Party, over the past decade it has devoted significant time and effort to examining the problem of housing affordability and has put forward a number of commendable solutions which would have addressed some of the problems we now face if they had been implemented in a timely manner.
The problems which NAMA is intended to solve are complex and deserve detailed examination. The booming Celtic tiger economy contributed significantly by creating an upwards spiral in expectations, wages and house prices. In the white heat of that period, it was difficult to speak about the need to dampen down house prices. The demographic changes in the population contributed to price inflation in that an extraordinary bulge of young people reached the stage of home ownership. Indeed, the boom in birthrates which occurred last year may lead to a similar problem 20 years hence.
The ready availability of 100% loans from financial institutions contributed hugely to our difficulties. Our entry into the eurozone was also a factor. It is difficult for Ireland to act alone to dampen credit availability but we need to put the genie back into the bottle somehow.
I also wish to discuss the hype generated by the property pages of national newspapers. Property supplements were occasionally as large as the main newspaper. Some of us drew attention to this extraordinary development but too few saw the writing on the wall.
Tax breaks for developers contributed significantly to our current difficulties. Since they were first introduced in 1985, property-based tax incentives contributed substantially to the rise in property values. Corruption also played a part. The extraordinary emphasis on property and land rezoning by the two major parties during the boom years did not lead to significant social gain.
We are moving towards a planning Bill which will address the increase in the price of building land by implementing one of the measures recommended in the Kenny report. This report, which was published in 1973, makes for good reading because even back then there was disquiet over the major increases in the price of land and a strong belief that something had to be done. It is a reflection on successive Governments that we have had to wait this long before strong action was taken.
It is interesting to have a debate on the right price for building land and housing. Some would seek a return to the boom years of double digit increases, although I am not among them. Others hope the price of property will fall to half its current value but I am not convinced that would be in Ireland's best interest. Stability would certainly help, particularly for the younger generation. We have to find easier ways for young people to access the menu of housing options. However, we must also be careful not to see home ownership as the be all and end all because that attitude also contributed to house price increases.
Green Party members held a fascinating meeting in Athlone last week in which we discussed these issues. One of the participants at that gathering noted that we were holding our debate in a hotel which is 12 stories high and sits atop a four story basement car park. In the context of a debate on the planning we want to see in the future, it would be interesting to ask whether that kind of development represents what we want for our medium-sized towns. One of the results of the boom years was that a town such as Athlone contains a massive oversupply of hotels because of the overzoning carried out in the expectation that the goose would continue to lay golden eggs for generations to come. We have a few tools with which we can move away from that attitude. NAMA may well be one of them. We also must put in place much more rigorous and stronger planning policies, and that is a debate where there is not complete buy-in from all parties in the House. In the interventions that my colleague, the Minister for the Environment, Heritage and Local Government, Deputy Gormley, has made in the development plans of some counties such as Monaghan and Mayo, I saw consternation from the elected members in those areas who felt that we should be having a considerable amount of land rezoned and should allow housing in most locations. That is not right. We must suck the development into the right areas, we must review the national spatial strategy and we must have more concentrated development of a much higher design quality. That is part of what must be done.
We also must put planning more closely at the heart of the NAMA legislation. There is a reference in the legislation to zoning criteria. We must move beyond that. I would like to see the phraseology in the preamble to the 2000 planning Act, which states that it is founded on the principles of proper planning and sustainable development, incorporated into part of the National Asset Management Agency legislation because planning criteria must be at the heart of the various criteria at which the new agency will look.
It is also crucial that we have the best international advice. I get a shiver down my spine when I see many of the agencies that were the poster boys for bad behaviour during the boom years in property sales being mentioned in the context of assisting NAMA in its endeavours. I would much rather have a dour Dutchman throwing up his hands in despair at the amount of rezoned land under the control of NAMA and telling us we must reduce this than have some of those names that featured on the front of the property pages suggesting to us that the price increases will start again and all will be well.
That is correct.
There has been some comment, in various radio interviews I have done and elsewhere, that the suggestion has been made on the Government benches that I, in my former capacity as economics editor of RTE, was somehow in favour of the Government's NAMA proposal, and I want to take this opportunity to put the record straight. In April last when there was an appendix to the budget with a summary of a Government plan on the banks and I was asked what was the story with the plan, I said a plan is better than no plan and that, ultimately, we would have great arguments on the valuations of this and it would not help lending in the short term and possibly in the medium term. That has been interpreted as some kind of an approval for the Government's approach.
I want to make clear that, in terms of what we knew in April last, a great deal of detail was left out. Up until April last the Government had been running around like a headless chicken with no plan whatsoever since the beginning of the credit crisis, which started in August 2007 and became a disaster and crisis from September 2008. Any plan sounded like a good idea to the people who were panicking over the chaos which had ensued and a brief outline of a plan was probably welcomed in financial circles, but what has unfolded as the details have been filled in makes clear that what we have in front of us is not a good plan. It is a nightmare for the taxpayer. It may be a dream plan for banks but it is something which will leave us, if we pursue it and if we carry on along this route, with untold long-term economic damage.
There was no suggestion in April last when this was produced that we would be paying over the odds for these assets. There was no such thing as this invention of "long-term economic value", whatever that is supposed to mean. There was no suggestion either that the taxpayer would be taking so much risk. There was an expectation, surely, that the banks would take many of these losses themselves - nothing like what we have in front of us - and there was no suggestion whatsoever that the plan would not include any commitment to ensure that the banks engage in new lending. As it contains none of those elements, it is clear that this is not a good plan. It is something that we should not proceed with at all.
If any evidence was required that this is a dream solution for the banks, one need only look at what happened with the Stock Market reaction where the share prices of banks went through the roof this morning. Last night the former chief executive of Bank of Ireland, on the television programme, "Tonight with Vincent Browne", stated that those who do not like NAMA should go out today and buy bank shares, and that way they would get part of the coming party. If anybody wants to know what this plan is about, that answer should suffice. This is a plan which may well fix up the banks, but it stitches up the taxpayer. That is for sure.
This Government plan is full of holes. It means that we will borrow €54 billion for an indefinite period and take a significant amount of risk. We have been told not to worry about the borrowing of that money, that we are borrowing it at a 1.5% interest rate, we should be delighted with the opportunity and that it will be a great assistance to the economy. I had been wondering for a period, as most people had, exactly how this would work until we heard the Minister for Finance this morning on the radio explaining it. He stated that NAMA will issue six-month bonds at 0.5% above the European Central Bank rate. The difficulty is that every six months these bonds must be reissued at 0.5% above whatever is the new relevant ECB rate. This is a variable rate mortgage, which the Minister is asking us to take out for an indefinite period, for €54 billion.
The worse aspect of this mortgage is that it is an interest-only variable rate mortgage. As these are Government bonds, there is no way we are paying back any of the principal. This is like a child asking his or her parents to go guarantor for a borrowing of €54 billion, with the child getting an interest-only mortgage at a low interest rate that would go up in time.
This is the lowest possible point in the interest rate cycle. This interest rate will go up. We have been given no indication of how long this commitment will be for. We can only assume it will be at least a decade. The economics of this plan will fall apart as a result. A 1% increase in the interest rate by the ECB will mean a €540 million additional bill for NAMA. As those interest rates go up one can be certain that the income from the loans which the Government states are providing some income will go down because the interest rate will go up in line with mainland European economic performance and our economy is bound to lag behind that given Ireland's present position. Therefore, there is no way that the supposedly performing loans are likely to be able to live up to the pressure, and I will come back to that. This is madhouse economics which will unravel as those interest rates rise and it is a big, big mistake.
We are being asked to catch a falling knife. We are told that for this €54 billion mortgage we will get all of these assets at a 30% discount. When one really looks at the figures, that means we are paying €54 billion for what we are told is a €77 billion banks' asset book of loans most of which are not delivering according to their deeds. Of the €77 billion, €9 billion is rolled-up interest. It is interest on loans which just cannot be met and it will be given over to this public organisation to take on board as some kind of an asset. These developers are already in trouble. These loans are already impaired. This interest is not being paid. It is not an asset. The Minister must take away that €9 billion and look at what he is buying. He is buying a €68 billion book for €54 billion. When one looks at that, it is not a 30% discount. That, for starters, at best, would be a 20% discount.
It is, however, worse than that because we are told that the value of these loans is €47 billion, as they are in mid-fall. We are being told to stick out our hand and catch that value - €47 billion. That value will go down. We have very good evidence historically and otherwise that suggests the value of those loans could be down by as much as two thirds by the time they hit the bottom. If they were to decrease by two thirds, we would end up with a loan book we should have paid €25 billion for and for which we are paying €54 billion. We are paying more than twice what we should and we are being told it is a great deal.
It is not a good deal, whatsoever. We are being told there is some type of 15% level above the market value we are going to pay for these loans. It is nowhere near 15% above market value, but rather 100% or more. That is what the Government is asking ordinary people to pay, and there are enormous risks as regards the risk sharing we are speaking about. When one considers the risks associated with these loan books, they would make one's toenails curl. Some 2,000 customers are involved in all the loans being taken over, but there are 21,500 loans. This means that for every one customer there are more than ten loans. If one of those loans goes down, ten of them will go down. That makes it extraordinarily risky, much riskier than any normal loan book and nowhere in the communications or legislation is that risk discussed or acknowledged. This is a far riskier proposal than it seems at first sight.
As regards the estimate of €54 billion it is asking us to accept, every single estimate the Government has produced in recent years has been so far wrong. It has had four budgets in ten months because the estimates are wrong. Every estimate on the way up in the economy is wrong. All the advisers who helped it get those estimates are the same people working on these estimates. It is an enormously risky process, on which we are taking a €54 billion interest only variable mortgage. There is nowhere near a 5% risk sharing appropriate in this. I heard the Green Party suggest it should be 50:50. It should be more, in my view - the banks should take on all of this risk and the taxpayer should take on none. There is a 5% risk element in this and for all of those risks I believe that is an enormous gamble.
Take AIB, for example, as per the data given to us in the documentation yesterday when the legislation was introduced in the House. AIB, for every one impaired loan has two others which are vulnerable or on watch, an enormously risky banking situation. Bank of Ireland, for every one impaired loan, has another one that has passed its due date, but has not yet been classed as impaired. Anglo Irish Bank has 10,000 impaired loans and another 13,000 that are passed due. Irish Life & Permanent has six passed due for every loan that is impaired. Therefore there are enormous problems in relation to this.
The ECB said that it had reservations about NAMA. It said the reservations were that the banks have a self-interest in not lending this money. It said there was a problem in relation to the risk sharing and that it preferred market value as opposed to this long-term economic value. None of those complaints has been properly addressed. There is no way, when €54 billion is given to our banks that they will lend that money out into the economy. They have borrowed the money from international banks in the first place to lend and as a result that €54 billion has to go back to pay the loans they got in order to give the money to our developers.
There is one final issue as regards the choice being made by the Government. The Government has an enormous obligation because it encouraged people to buy houses at the top of the market with 30-year and 40-year mortgages. It must deliver economic growth. It is faced with an economic problem which it divided into three. It has given one part of it, Government cutbacks, to one consultancy group, a second part to the Commission on Taxation and the third part, fixing the banks, to a third consultancy group, Peter Bacon. Each group has produced a solution to its particular part of the problem, but nowhere is the solution joined up. Nowhere is there any suggestion that we should be looking at promoting economic growth rather than solving individual elements. The thinking should be joined up and the economy needs a stimulus. There is, however, no hope of stimulus in this bank plan for at least two years, and the Government is ignoring the idea of Fine Gael's "good bank", which would provide that stimulus immediately. It has rubbished Fine Gael's proposal because it said we spoke about subordinated bondholders taking on the chin their responsibility and their losses. When it comes to risk sharing, however, it says that subordinated bonds are the way forward, so that these will not have to be paid. The inconsistency and hypocrisy speaks for itself.
This is a really bad plan and the Government is wriggling and squirming and trying to sell it and shove it down people's throats. It is a big mistake that will come back to haunt us. It will not be this Government that has to fix up the mess, but other Administrations after it. God love the people when this particular chicken comes home to roost. It is a €54 billion variable interest rate interest-only mortgage for which in the end we are going to have to pick up an enormous tab. It is a disgrace.
It was important that Deputy Lee was able to get in the points as regards current mortgage holders and I am delighted e has put that on the record.
The Taoiseach and the Government seem to believe that the challenge is to restore the banking system, whereas we on this side of the House want to change it fundamentally. We want to change the way banking is practised and the way regulation is supposed to be done. Anyone who believes this NAMA legislation will change the culture of banking is either naive or gullible. The Taoiseach said at the IPA national conference on 9 September that we have to restore our banking system to full functioning so that credit is available to businesses and households, trade and investment and the jobs depending on them can proceed. I take issue with the "full functioning" aspect. Is that a declaration that the banks were fully functioning prior to the banking crisis? I disagree with that initial premise because I do not want the banking system to go back to the way it was, giving out free money, 100% and 110% mortgages. The banking system as it operated has crippled my generation, a generation of people with nooses around their necks with €500,000 to €600,000 mortgages, and people are absolutely frightened to death to hear reports that the French and German economies are coming out of recession because they know that interest rates will go up. That is why I am delighted Deputy Lee raised the point about mortgage holders because there is nothing in the NAMA plan to give them protection.
At the Fianna Fáil think-in this week the Taoiseach said we must fix the banks as quickly as possible and get them back lending. Where was the decisiveness 12 or 18 months ago, when small businesses were going to the wall and there were articles about high street businesses in Letterkenny, Drogheda or other major towns where the blood was being sucked dry from local economies and the only businesses surviving were Lidl, Aldi, Tesco and Dunnes Stores? That is the reality of what is happening and that decisiveness was not there.
The Tánaiste referred to the "gratefulness" of the banks and the Minister for Finance, Deputy Brian Lenihan, said yesterday that the banks needed to be grateful as regards the job we are about to do in relation to the NAMA legislation. This was like parents telling a delinquent teenager that he or she better be grateful for the sacrifices they made in raising him or her into the twilight teenage years. The banks are the delinquent ones, however, and delinquent teenagers or delinquent banks do not do grateful. There is no point in the Minister imploring the banks to be grateful because it is like water off a duck's back.
In Britain the debate has moved on from recapitalisation. Already there is controversy over bankers receiving bonuses again. The old culture is back and old habits are finding it very hard to die. As regards the political debate that is not happening in this country, the discussion now taking place post capitalisation in the UK and America has changed from the question of whether it is a socialist or capitalist model that is in place. Here the Minister for Finance is about to inject the socialist ideal, getting every single taxpayer to bail out the banks. Once they are bailed out they will revert to the capitalist model and the old culture that was in place as regards protecting the banks, their shareholders, the brokers and the bondholders.
The Minister for Finance told a Sunday newspaper last weekend that throughout this banking crisis the onus is on the banks to attract private investment. This is on the record. The Minister said they had not been able to attract private investment and that he could not wait forever. How does the Minister know the banks have not been able to attract private investment? How do we know banks have not been offered fresh capital for some of their toxic loans in the past 12 to 18 months? Does the Minister have access to information showing that banks were prepared to negotiate with potential investors in the past 12 to 18 months or were the banks just waiting for the NAMA train to come along? Given the 50% drop in property prices, including commercial property and development land, would it not be prudent for an international investor to look at Ireland as a good investment?
In order to justify this legislation, the Minister should provide evidence of banks having negotiated with potential investors. I believe a sinister vacuum has been created by banks through lack of transparency and honesty. The Minister needs to back up his statement that they have not been able to attract any private investment. Does he mean there is no evidence of any type of international investors or bidders interested in some type of property having approached banks? The Minister needs to clarify that statement which is very dangerous based on his communications with the banks. He said that they have not been able to attract any private investment and that he cannot wait forever. Let the Minister stand over that comment by coming in here and stating that neither AIB nor Bank of Ireland has had any approaches from international investors for the purchase of any property in their toxic balance sheet. He should produce that evidence because it could raise a few issues.
Dara Calleary (Minister of State with special responsibility for Public Service Transformation and Labour Affairs, Department of Enterprise, Trade and Employment; Mayo, Fianna Fail)
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We are coming to the end of the first phase of what has been an extraordinary 12 months not just in the life of the country, but also in the life of the world. Last Monday marked the first anniversary of the collapse of Lehman Brothers, bringing with it the oil that for whatever reason was powering most of the international banking system. That in addition to our own domestic issues has led us to the situation facing us today. The accusations that the Government has not responded or has not responded quickly enough are unfair. This House came back early last year to deal with the bank guarantee scheme, a scheme that was supported by the other side of the House and which has been renewed. The House came back early once again in January to deal with the issue of Anglo Irish Bank and the impact its potential collapse would have had on the economy. On the other side of the balance sheet, we have introduced a range of fiscal cuts - all opposed - in order to show that as a country we were gearing ourselves for the downturn ahead.
NAMA and the proposals outlined in detail yesterday by the Minister, Deputy Brian Lenihan, provide us with a direction and purpose for how we will proceed. I agree with much of what Deputy McHugh said about restructuring the banking system. We are going to do that. Yesterday, the Minister made a commitment that this would now be the focus of his work in terms of how the banking system operates here. We cannot really do that unless we are in a position to provide capital to the banks. I have no doubt that the Minister will respond to Deputy Joe McHugh's comments - I will draw his attention to them - about the banks being able to access cash. One of the critical reasons they have been unable to provide funds to small businesses or mortgages is that they have not been able to access lending cash on the international markets or access it at a rate that could be passed on in a commercial way. That is what NAMA is intended to rectify.
It is not a write-off of €54 billion as many on the other side of the House will say. That €54 billion is firstly an estimate that will be backed up by each and every loan that is being transferred into NAMA being examined and assessed. Every loan is backed up by security for which we will get a real and proper value and not some type of inflated value. That is another guarantee for the taxpayer in terms of the detailed approach being taken.
It is unfortunate that Deputy George Lee has left. I believe he used the term "mad economics" - he could look in the mirror himself. To suggest a figure of €25 billion on that book is ludicrous.
Dara Calleary (Minister of State with special responsibility for Public Service Transformation and Labour Affairs, Department of Enterprise, Trade and Employment; Mayo, Fianna Fail)
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I have no difficulty in taking him on. It is wrong to throw around figures like that and it is unfortunate. The Deputy brings expertise and experience that may not be here.
Dara Calleary (Minister of State with special responsibility for Public Service Transformation and Labour Affairs, Department of Enterprise, Trade and Employment; Mayo, Fianna Fail)
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However, let him live up to the declaration he made when he decided to run that he wanted to change the way politics operates, a criticism of every Deputy in this House, including Deputy Bernard Durkan. He said he wanted to engage in politics and offer solutions. We have a solution so let him input his expertise and experience on Committee Stage.
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NAMA is certainly not a get-out clause and I welcome Deputy Simon Coveney's remarks that he saw it as not being a get-out clause for the developers and those that fate has thrown around. Loans will be followed up. Those who have the loans will still be followed up in the same fashion as they were previously. While NAMA will ultimately solve the fiduciary and monetary issues facing our system, much work remains to be done on other responsibility issues. I welcome the appointment of Dr. Patrick Honohan as Governor of the Central Bank of Ireland. He brings international skills and experience and is not coming from the usual clearing house for Central Bank of Ireland governors, the Department of Finance. That in itself is a major break with tradition and a major signal on the part of the Minister that the regulatory environment will change.
I also welcome the commitment by the Taoiseach this morning that we will have a new director of financial regulation, somebody of high calibre and experience. If the appointment of Dr. Patrick Honohan is anything to go by, we can look forward to somebody with real power and real teeth in order to ensure that we do not find ourselves in this situation again. I also encourage the Deputies opposite to engage with the Minister given his commitment to discuss with them the appointment of people to NAMA so that they can be involved in that regard.
However, other things remain to be done. I agree with proposals floated this summer that we need a complete examination of the banking industry in Ireland and what went on particularly in the past five years. The place to do it is in this House through the Committee of Public Accounts-----
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-----along the same lines as was done when it was chaired by the late former Deputy, Jim Mitchell. That produced results and showed that this House can work. We do not need tribunals to do it.
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Let us do it again. I would certainly support that happening in this House. I cannot imagine that either Deputy Durkan or the Acting Chairman, Deputy Ardagh, would charge €100 million to do it.
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There are taxpayer guarantees. This morning Deputy Enda Kenny and this evening Deputy George Lee criticised the fact that bank shares rose this morning while ignoring the fact that the share price increase means the yield and return to the Government will increase through our shares in Bank of Ireland and AIB and that this value will assist us in the future.
Since the legislation was published at the end of July, the Minister for Finance has shown himself to be very open to ideas and suggestions for improvements. He has shown that he is willing to share and to take on board good ideas.
Deputy Lee criticised the model on the basis that European Central Bank rates would increase, which is correct. However, the Fine Gael model, of which he is a proponent, is built on €40 billion worth of ECB cash going into that bank. So the same issue of rising ECB interest rates would apply to his magic bank, which we have already shown not to be properly funded, not to have an operating structure and certainly not capable of delivering a functioning banking system within seven weeks, which is what Deputy Lee has been promising.
We have a chance to lead the debate in this House. While we are not saying it is perfect, through NAMA we have a chance to complete the work that was started with the guarantee by sharing ideas and making suggestions. I would love to see a response to the Minister's letter to leaders of the Opposition. I hope they will take on board his invitation to submit changes. That would be to the betterment of NAMA and would reflect well on both Houses of the Oireachtas.
One would like to believe that this is the final piece of the jigsaw. Deputy Lee was probably right in suggesting there is a time for joining up the various responses. That can be done properly and efficiently in the committee system. Under the chairmanship of Deputy Michael Ahern the Oireachtas Joint Committee on Finance and the Public Service is doing wonderful work. Perhaps it is time for that committee to combine the work of dealing with the McCarthy report, the Commission on Taxation report and NAMA to give us an overall map of where we are going. I have no doubt the Minister has that in mind, and the input of the committee will allow great progress in this regard.
NAMA will never be a popular project. It is not something people will like. However, it is essential to get money flowing in our economy again.
-----particularly in my short time in the House. It is not just a debate about new legislation but about how we can reform our economy and our banking system. It is also about the events of the past and the pivotal area of banking, development, housing and regulation, as well as the kind of society we want to create out of the embers of the catastrophic actions which have landed Ireland - our country, my country - in this situation.
In 1973, the Irish Banks' Standing Committee told the Committee on the Price of Building Land, which produced what is known as the Kenny report:
The member Banks fully support any measures designed to control for the benefit of the community the price of land for housing and other forms of development. They wish to make it quite clear that it is their agreed policy, in conformity with Central Bank guidelines on credit, to refuse generally to grant advances for speculative purposes and to state that this policy is actively pursued whenever, in the particular case of land purchases, an element of speculation is involved or detected.
If that was the guiding spirit of the banks back then, the successors to those heads of Irish banks have disgraced themselves again, to paraphrase W.B. Yeats. The Irish banks have acted disgracefully in recent years and they should be ashamed of themselves. Their practices must never be allowed to be repeated. The recklessness, the facilitation of speculative land purchases, and banking which amounted to nothing more than gambling were at the heart of the events which have led us to discuss the NAMA legislation. That is why my party and I see a need for a cleaning out of these banks' boards and a successful conclusion to the current investigations being undertaken by the Office of Corporate Enforcement. Members should make no mistake about it; people want to see white-collar crime punished.
We have all talked to people in our clinics - pensioners who have lost everything, young couples who cannot pay their mortgages, business people weeping in our offices because they cannot pay the faceless companies for rent hikes in shopping centres all over the land - all because the banks have now put the squeeze on or, in some cases, lent too freely and in a profligate fashion. We want to see the Office of Corporate Enforcement bring a rapid conclusion to its study of what is to happen to those who brought this country to the brink of bankruptcy.
Retribution alone will not lead to recovery. NAMA is about ensuring that the Irish taxpayer - the householder, the small or large businessman, the farmer - can get access to credit again. As someone from a background in the SME community I know the importance of credit, bridging loans, overdraft facilities, and lending power, which has dried up over the past year. There are people in the private sector who are willing to take a 25% wage cut in order to support their employers who have given them jobs over the years, particularly in the retail sector, where there have been fall-offs of up to 43% in the book trade and the shoe and clothes trade. The Government, as the Minister reminded us yesterday, has played its part this year with actions such as the establishment of the credit clearing group, the export stabilisation fund and the job subsidy scheme to help those who need credit and ensure banks are providing credit where it is justified. The provision that will be introduced to ensure the banks lend a certain amount of money is vital, and is something the Green Party is pleased to have achieved in the legislation. The amendment must be clear and offer relentless oversight of the banks in this regard.
Amendments have been put forward to ensure transparency in the NAMA legislation. The criminalisation of lobbying and quarterly reports to the Minister are important. We have had light-touch regulation and seen the departure of the chief executive of the Financial Regulator. We want to make sure these mistakes do not happen again. It is difficult to be in Government at a difficult time, but we will not shirk the responsibility of doing the right thing for the country. I would like to see the establishment of an Oireachtas sub-committee to monitor the work of NAMA and to scrutinise the Minister on those quarterly reports.
We all know that planning reform and the social dividend are key to making sure we are not reduced to these circumstances again. It is sad to see Deputy Rabbitte find one of the key Green Party components of the Bill so amusing. It was perverse of him to be so amused that this legislation is being used for social gain and the common good, which I would have thought a core Labour Party principle. This legislation will be used to help alleviate the cost and pressure on the State to provide land for our schools and land banks. I do not think there are many people around the country who have waited for years to see schools built - waited in vain because of the punitive cost - who would share the Deputy's humour at this initiative of social dividend.
The social dividend aspect of this legislation, combined with reforms in other areas, provides a real opportunity to address the issues of housing supply and demand and standards which plagued this country during the boom years. It is an opportunity for us to undo the damage of a property market in which more than 41% of new houses were acquired as investments or second homes and now remain idle. We all know them in our constituencies; they are the houses with piles of leaflets, advertisements for Lidl and Aldi and Deputies' newsletters in the doors. This was a market in which the number of social and affordable houses slumped to less than 1% of total housing stock in 2007 - which is a scandal - and in which a shamefully high proportion of rented accommodation did not meet minimum legal standards.
We need to return to a housing environment in which basic housing needs guide the market, not speculation and property investment, which puts developers and landlords ahead of access to affordable housing. These are policies which need to be implemented in tandem with the NAMA legislation. Let us not forget there are hundreds of thousands of young couples who might never be able to afford a house unless we do something about the housing bubble.
Deputy Rabbitte's party colleague said last week that the windfall tax to deter speculation was too late to be of relevance. If that is the case, Deputy Burton should remind Deputy Quinn of the Oireachtas committee he established in 1983, as Minister of State in the Department of the Environment, to examine "possible legislative measures to deal, in the interests of the common good, with the supply and cost of building land". When he established the committee Deputy Quinn said the problem of land prices had got worse and had not eased since 1973 when the Kenny report was submitted to Government. Neither that nor subsequent Labour Party Governments addressed this issue. We in the Green Party are ensuring, through this measure, that land speculation is controlled and an 80% windfall land tax is implemented.
In our new Planning and Development (Amendment) Bill 2009 we will make sure planning is the most dynamic part of the new legislation. We must also prevent such a situation from arising again in the property market.
The Labour Party's red NAMA and Fine Gael's magic-wand blue NAMA do not compare favourably with the current approach, which balances asset management, tight controls and taxpayer protection with social opportunities and provisions for preventing mistakes from happening again.
I recently read T. S. Eliot's The Waste Land, which is a marvellous poem about the human condition. It is a stunning epitaph to what has gone before us which has brought us to this day's debate on the NAMA legislation. The wasteland must not be revisited except in the poetry books in our homes and libraries. T. S. Eliot's stark words about what happens to a greedy population should be read by everybody in the House.
John Steinbeck wrote quite a bit about hardship as well. The wasteland was described by him very clearly in the Grapes of Wrath. It behoves us all, as we are in a poetic mood, to read all that he wrote about how those circumstances came about. The one lesson to be learned from that, as the Acting Chairman and I well know, is that nothing has changed. That is the sad part of it. Unfortunately, many people on the opposite side of the House who recently spoke believe what they said. They believe it on the basis that they have been told that this legislation is the solution to the problem.
As the Acting Chairman could tell the House, a former Committee of Public Accounts inquired into the activities of the banks fairly thoroughly and it identified all the issues that have come up to bite us again. Following the DIRT inquiry, the banks gave a firm undertaking that they would never go down that route again, that they would attend to their fiduciary duties in an open and clear way, that there would be good governance and regular and independent audits and that they would in no way manipulate the finances of their respective institutions in a manner that would undermine the State and the interests of its citizens. As was mentioned, despite all our efforts at that time, the late chairman of that committee lost his seat in the subsequent general election. The Acting Chairman was a member of that committee, as were Deputy Rabbitte, myself and one or two others. The one lesson we learned from dealing with that kind of organisation or group of people involved in big business is they do not care. They could not care less about legislators. To show their contempt for legislators, they embarked on the same course that they were on before.
The Financial Regulator, the Governor of the Central Bank and the Secretary General of the Department of Finance said in the past six months that they all spoke out, but how did we not hear them? How did the general public not hear them? If they spoke out, why was Government policy not adjusted in accordance with their concerns and views? All that happened in the past seven or eight years was that the people who did speak out and who raised concerns about the issues were ridiculed. The people on this side of the House and the people outside of this House, a mere handful, who spoke out, raised questions and wondered what was going on were ridiculed. They were told to get lost, they did not know what they were talking about, they were being unpatriotic and were undermining the economy. It was such a stupid way to carry on, blindfolded and lemon-like. The population were led over the edge of the abyss. I can only conclude, and I may be wrong, that if all the people who did that to this country are not guilty, then the people who gave direction, instruction and were in government are guilty. One way or the other, it is important that this nation finds out because if these crimes, which is what they are, go unpunished, I guarantee that in ten years time somebody will be sitting in this House reviewing the same old story again.
Deputy Lee made an interesting comparison when he referred to the 15% market value upgrade to compensate the people who are to guide the economy forward. It will be a type of bridge to help us move from the desperate position we are in now on to dry land, which the Government and the architects of this plan hope will happen and that we will be overtaken by inflation and positive measures in this economy and the worldwide economy. The worldwide economic problem is totally different from the one that affects this country. While there is a worldwide economic problem, we have our own self-invented one imposed on the people of this country by the State, the Government, the banks and the so-called experts. Deputy Lee said it was more like a 100% mark-up because it was tied to the valuation and he is right.
During the past five or six years we all heard that the cause of the economic bubble in the construction sector was the granting of 100% loans, but it was not because 150% and 170% loans were offered. All one had to go was to search for a loan on the Internet or look up houses for sale on the various building sites. The first two houses on a site advertised in a morning were offered for sale at €200,000, by that evening the price had increased to €250,000 and by the following day it had increased to €300,000. It was a crazy situation. Deputy Gogarty will be aware that in his village houses increased in value by €80,000 over one weekend. How in God's name could that be tolerated anywhere? Who was going mad? The banking sector got into business with the construction sector and they decided to screw the whole population and to offer more and more money to each person competing in the market for a basic house, but they eliminated the first-time buyer from the market. The first-time buyer was not required. They decided to form companies, buy their own property, set up a management agency and rent property to the unfortunate potential first-time buyer at a rent that precluded him or her from ever being able to afford to take out a mortgage. Stupid notions were put forward by various well-meaning people to the effect we should have a savings scheme for these people, that we should not help them out except by way of a savings scheme over a number of years as we all had to save hard when we were younger. How in God's name could people take out a mortgage if they were already effectively paying a high mortgage by way of rent? I could never conceive how people did not understand that.
During the 1980s when, allegedly, things were bad in this country every Member at the time would have had regular meetings with their constituents, particularly first-time buyers. There was never was a time, even in the bleakest of those days, that it was not possible to encourage a potential first-time buyer towards acquiring his or her own house. All a person needed was a job or even the potential of getting a job and that person would be able to hold on to his or her house. All the criticisms that were levelled at people at that time who were unemployed to the effect that they were not willing to work and so on was rubbish. Those people proved that as soon as soon as the opportunity arose.
I do not know if anyone else interpreted a reference in the Taoiseach's speech this morning that way I did, but I found it alarming. In the second paragraph on page 5 of his speech he said:
The Government's existing recapitalisation package includes a number of measures to boost lending and underpin economic activity. These measures include a commitment by the two main banks to increase lending capacity to small and medium-sized enterprises in 2009 by 10% over the 2008 levels ...
He said to increase lending capacity; he did not say to increase lending. Lending is currently zilch and I do not know what the lending capacity is because nobody knows that. Lending is zero and one can increase on zero by any percentage and it will still be nothing. The Taoiseach went on to say, "... and to provide an additional 30% capacity for lending to first-time buyers [in 2009]." He again used the word "capacity". He did not say to provide an additional 30% in lending. In other words, the banks and the lending institutions will have the potential to lend an extra 30% to first-time buyers over their capacity to lend in 2009. Nothing is being loaned currently. Nobody cares about first-time buyers. What NAMA proposes to do, sadly by one means or another, is to once again make first-time buyers shoulder the burden, which has been dropped on them and the rest of the population, by having to pay increased prices for their houses. It is incredible.
Up to recently, the maximum loan available through the various local authority shared ownership schemes was €185,000. That is ironic as it could be a saver for them. Then, all of a sudden, when the country went bust it was increased to €250,000. I never heard the like of that in my life. I do not know how something like that could happen. I am sure the Minister of State, Deputy Pat Carey, who is sitting opposite understands. He deals with that kind of situation himself. I had occasion to argue with various financial institutions in recent years. I could not understand what they were trying to do, but now I know. I can see it all now. The Taoiseach continued in his speech to say:
The Financial Regulator is monitoring compliance with these lending targets. Furthermore, AIB and Bank of Ireland have each created funds to support projects which have a positive impact on the environment or will provide innovation in clean energy and have committed to seed capital funds, in collaboration with Enterprise Ireland, to support further the creation and development of new enterprises.
That is the bit to appease the Greens to which various other speakers referred. If the Green Party Members across the Chamber believe that, they will believe anything. I have to hand it to the Government in general and Fianna Fáil in particular. Their antics in the past 12 months would make a pet fox look dull. They knew full well what was going on. They know that the culprits who created the economic situation in this country should be before the courts. Is that not a fact? In any other country they would be. They do not care because there is no chance of that happening. The Greens and everybody else can talk as much as they like about it but if it was a business person or a householder falling behind in their mortgage he or she would quickly be before the courts.
There are plenty of such people before the courts at this moment. I heard somebody from the Government side of the House say in recent days that there is no evidence of that. They had better believe there is evidence on a daily basis of people coming before the courts. I have been there myself to speak on behalf of constituents who find themselves in that situation. Other Members of this House have done so as well. For God's sake, we need to recognise what is going on around us. We are in a serious situation.
It has been suggested that no rules nor laws have been broken by the institutions. Then why do we have the Companies Act 1990? Some of us spent six months in Kildare House on Committee Stage of that Bill. We were buried alive while going through the legislation in detail. What were we there for? What about the procedures relating to persons found guilty of malfeasance or a failure to uphold the good conduct of the company? What about the sanction of them being banned from ever holding office? What about them being discharged dishonourably from the office they held? In spite of that, what do we do in this country? We say, "Sorry, you're nice guys. You made a bit of a mess of it and we have to give you a different job. Here is a little golden handshake as you go out the door. We do not want much to be said about it. There might be some hassle about it. Let us be clear, you did well".
That is what the public is concerned about. That is what makes people angry. The Government has managed to turn that anger on the Members of the Oireachtas and the institutions of the State. For their own reasons some media outlets want to do the same thing. It is now commonly recognised that it was the institutions of State that were wrong. Let us not forget some of what is being peddled in the context of the Lisbon treaty emanates from some elements in Whitehall. They say the political classes have lost their touch. I thought we got rid of the political classes in 1922. What is happening now is that public confidence in the Oireachtas is being undermined. That is a serious issue and will have widespread implications in the short term as well as the long term. This is a serious issue as when it happened previously in Europe there were disastrous consequences.
I say to those who say that such things cannot happen again to read back on what the people who spoke about those issues said in the 1930s. The first thing that happens is that public confidence in the institutions diminishes and then they have to be replaced. It is the replacement that always worries me. One of the stories being peddled will suit the Government at the moment, but it will not always suit the Government that the Opposition can do nothing either, which means nothing can be done. That is the first sign of despair and that is the first danger of society breaking down. It may be all right for political reasons to castigate the Opposition but its Members are the people who have asked the necessary questions.
Six or seven months ago I heard the presenter of a radio show inquire about how the Opposition had never said anything about what was going on. He never heard the Opposition ask any questions. Where was he? He was on the tiger's back racing for the line as if his life depended upon it. There is no use in people blaming the Opposition for the situation that is now unfolding. The Government was running the country and it had absolute responsibility. The sooner people realise that the better for themselves. I will not criticise the Green Party for going into Government in the past two years. To quote another party leader who went into Government in the not too distant past: "These are people we can do business with". Unfortunately the Green Party is doing business with Fianna Fáil now and there will be consequences for both parties.
The current situation requires fairly substantial retribution against those people who caused the problem. In any other jurisdiction they would be before the courts. I cannot understand why they are not. Everybody else is subject to the rule of law and to punishment, but in this country they have decided to punish the institutions of the State and the Members of the House, reduce their salaries on the basis that they did something wrong and create the impression that everybody is crooked. That is a great way to undermine public confidence in everything and there is where the danger lies.
Deputy White referred to an issue previously. Dr. Bacon made many recommendations on the survival package. He also produced three reports on the housing sector. It is extraordinary that the same artist comes back to visit the scene of the crime with a view to addressing the problems he originally created. That is ironic.
There is a notion abroad that if one reduces the cost of building land that will solve all of the problems. It will not, because even if the building land was given to the developers for nothing it would not affect the price of houses because of the role played by greed. The same thing would happen if development land was given free to the builders in the morning. It is a myth that the provision of land to developers for nothing or half nothing would result in a reduction in the price of housing. If one needs proof, one can check on some of the lands that were sold for exactly that before the boom started and see what became of them very quickly without ever a sod being turned.
The Acting Chairman, Deputy Ardagh, knows I could talk for a lot longer. He could talk for a lot longer also. He and I were together on an inquiry that relates exactly to the issues we are now talking about, which are seen to be causes of the damage to the economy. Nothing happened although we made the sacrifices. We took a lot of abuse at the time but we have not forgotten.
I will start by agreeing with Deputy Durkan. An overwhelming case can be made to ensure that those at the helm during the crisis in the banking sector get punished where the law has been flouted. The problem is that in many cases the law was lax. There was not enough regulation or enforcement. No more than in a murder or criminal investigation, one cannot bring a matter before the Director of Public Prosecutions until one has evidence to prosecute the case. My party colleagues and I - and I am sure all Members of this House - would be abhorred if a high flying fat cat executive, who profiteered from a loss making situation at the expense of the taxpayer, were to get off on a technicality. We do not want that to happen. I am reassured by the commitment of the Minister for Finance to my party and others that the issue is being followed up and that the full rigors of the law will be brought to bear. Time will tell. I share Deputy Bernard Durkan's sentiment in this regard.
Deputy Durkan also mentioned that banks went into business with speculators and the construction sector, which is true. Those comrades also went into business with councillors throughout the country. My colleague, the Minister, Deputy John Gormley, spoke earlier of a number of think-ins held in Monaghan where he altered the development plan. Tracts of land in other places across Ireland were rezoned not alone by Fianna Fáil and the Progressive Democrats, but by Fine Gael and the Labour Party, land that did not need to be rezoned because it far exceeded the demographic requirement for the area. In this case, through legitimate political donations which all of the major parties readily accepted, the business contract was signed, the land was delivered, the developers had it rezoned and made a profit and were able to borrow from the banks on the back of that speculative process. The banks fed into this; they also donated to political parties.
We will start from the beginning now. The beginning is the legislation before us and where we go from here, how we protect the Irish taxpayer and how we bring liquidity back into the system. As a Member of the Green Party, Comhaontas Glas, I must point my party's disagreement with the concept of the need to get back to economic growth. In the narrow economic thinking, the voodoo economics under which the global system operates, we may need to do this, but long term one cannot have unbridled economic growth because one of the main factors of production is scarce. The resources of this planet are scarce. We cannot continue producing as if there is no tomorrow. We must find a different, more sustainable model.
The great depression in the US became apparent because of a shortage of credit. It was based on money that at the time was related to the gold standard. That no longer applies. The lending process now requires a certain amount of deposits going through the system and is dependent on channelling debt throughout the system. When a person puts approximately €1,200 into a bank, this eventually leads to approximately €1 million worth of money floating through the system, money which does not really exist and which, if some of loans are overspread or if people start trading in loans as they did in the US leading to the creation of this whole problem, results in the collapse of the system.
Absolutely. That is why, in the short term interests of this country, the economic interests of ordinary people being obtain loans for home improvements, business or in order to have their wages paid, we must get the banking system working again. That is the reason the Green Party is supporting this legislation. If we had our way we would change the whole global system of economics. Unfortunately, we cannot do that; it is beyond even our reach.
We must operate within conventional economic thought. I mention this because issues such as economic growth, sustainability and peak oil arose at our conference in Athlone on NAMA and the various options put forward. Oil prices may have already peaked or are just about to peak and this will have a profound impact on the economic system as it is a limiting factor which will stop unbridled economic growth, never mind the damage that climate change will do.
We realise the limitations in respect of changing the global economic system. However, we are in Government and in a position to do something that will, it is hoped, be far-reaching and positive for the country.
I received an e-mail in which I was referred to as a quisling, a person who consorts with the enemy, who is unpatriotic. That is the level of-----
That is the level of debate we have in this country, namely, a person who does the right thing but who may be aligned to a party that contributed to a problem, is not in Government in order to do the right thing. I do not wish to get into the politics of blame because I believe we are all to blame for this situation.
This NAMA legislation is a serious attempt to try to address the liquidity problem. A number of varied proposals have been put forward. On the Labour Party nationalisation scheme, Deputy Eamon Gilmore said it is not nationalisation because it is only for a temporary period. However, as Alan Blinder, former vice-chairman of the Federal Reserve in the US suggested recently, if a government does go down the temporary nationalisation route, there is no guarantee that it will not be medium or long term. He said: "If a government takes over a bank the taxpayers tacitly acquire the assets thereby inheriting all the uncertainties over valuation." If a bank has a negative net worth when it is nationalised, it is the taxpayer who will fill the hole.
Regardless of how it is done, the taxpayer has to fill the hole. We in the Green Party contend that NAMA, if done properly, will cost the taxpayer less than nationalisation. Nationalisation will lead to an outflow of investment in the country and there is no guarantee in terms of how long that would last. It also raises issues in regard to the 85,000 ordinary decent people employed in the banking sector in this country. I am speaking not of the individuals I referred to last year as scum - those who messed it up for all of us - but of ordinary workers. I apologise to any bank worker who thought I was referring to them in that way.
On nationalisation, we have already taken over Anglo Irish Bank. It has received more than €4 billion in capital funding to date and has lost approximately €15 billion in deposits. The Central Bank has had to make up the majority of the difference through a €10 billion liquidity injection. If the State were to wind up Anglo Irish Bank, the cost to the taxpayer would be in the region of €64 billion. The same would apply in respect of the larger banks if nationalised, even on a temporary basis. In that context, it is riskier to go down that route.
That is what the taxpayer elects a Government to do. It would be far more politically prudent were my colleagues and I to hold up placards saying NAMA is bailing out the bankers and the developers and for that reason we should call an election and be the heroes.
We are not going to do that. The right thing is to try to do right by the taxpayer and minimise the risk as much as possible. It gladdens my heart to have a former member of the Oireachtas, a Progressive Democrat, former Minister of State, Tom Parlon, criticise some of the achievements of the Green Party in respect of NAMA and related legislation.
Anyone who is an enemy of Tom Parlon is a friend of mine and that is why I am supporting this legislation.
Let us come now to the Fine Gael proposal. Fine Gael has proposed the establishment of a good bank which, unfortunately, will not get the assets required to make it work. The magic bank proposed by Fine Gael should be able to borrow from the European Central Bank but the assets have already been used to access European Central Bank funding and there is no additional funding available.
The process will begin as soon as the legislation is passed whereas under the Fine Gael proposal, it will not begin for a year. Such uncertainty cannot be tolerated. We may not have an economy in 12 months time if we do not set this process in train as soon as possible.
Deputies Durkan, Lee, Burton and others made valid points in regard to the risks associated with this plan. Nobody denies that such risks apply. It is akin to a Jehovah's Witness being told that his or her child requires a blood transfusion but there is nevertheless no guarantee the child's life will be saved. My party does not accept corporate donations and abhors the system of backslapping and the culture of corruption that has prevailed. We have reservations about the NAMA proposal. However, having searched our collective conscience within membership discussions, of which there will be more in due course, we realised that something must be done. Our membership recognises that NAMA with improvements is probably the least worst option. Many good people in our party have fed into the process of consultation in their efforts to improve the proposal.
The idea of an 80% windfall tax on rezoning was proposed in the Kenny report decades ago and will now finally be introduced within two years of the Green Party entering government.
Those stamp duty receipts were squandered. There were some significant achievements during the ten years of the Fianna Fáil-Progressive Democrats Government but there were many follies too. Instead of dwelling on the past, the Government must proceed with clearing up the mess, hopefully with the constructive support of the Opposition. That is what we are trying to do by, for example, including a social dividend element in the legislation.
The Minister for Finance indicated yesterday that schools, community organisations, sports clubs, voluntary housing organisations and others may be able to access NAMA land at reasonable rates. I would go further and argue that where the land was rezoned foolishly merely to fill the back pockets of a particular land owner or developer and is now worthless, that land should be handed over to the community at no charge and the loss borne by the owner or developer.
We had to wait a long time for that. Another initiative we prioritised soon after entering government was the establishment of a developing areas unit and the development of guidelines for local authorities to ensure provision would be made for schools as part of any residential development. These were incorporated not only into strategic development zones but also local area plans. Progress has been made in that area.
I take the Deputy's point and do not disagree with it in general. I am merely pointing out the reality in some areas.
In regard to NAMA, there will always be something of a guessing game in regard to the valuation issue, and there has been much talk of risk-sharing. The estimated valuation draw-down has been put at €47 billion, with the €54 billion being paid representing a premium of €7 billion. Some €2.7 billion of that is incumbent on the banks to cover, with the rest incumbent on the State. It is reasonable to argue that this does not represent a fair sharing of the risk element. I expect my party members to have strong views on this. However, it has also been widely acknowledged that the capitalisation of the banks will not be complete even at these calculations and it may well be that further investment in either or both of the two major commercial banks will be necessary. I heard a suggestion on "Drivetime" this evening that a stake of 40% in AIB is likely. It could well be 60%, which would amount to nationalisation without the drawbacks. We do not know precisely what is going to happen but it is clear that the State's take-up of the banking sector will increase, which means the risk is then shared on what would work out at a 50:50 basis, primarily because if the banks benefit, the taxpayer, via the State, will also benefit. It is a no-brainer in one sense but highly risky in another. There is no way around the taking of that risk.
I acknowledge that Fine Gael's proposal was diligently researched and put forward in the best interests of the State. The same is true of the plan put forward by the Labour Party. I do not accept for one minute that either party is motivated by blind ideology or pure populism. I accept that a case can be made for nationalisation on a temporary basis, as proposed by the Labour Party. However, a consideration of the risks and drawbacks of each of the proposals makes clear that a finely honed version of NAMA is the least risky of all. This is not to say there is no risk involved.
I will conclude by referring to an e-mail received from one of our members pointing out the similarities between NAMA and a story he proceeded to relate. He spoke of a friend who put a younger brother through university, providing accommodation in his family home and subsidising his expenses as he studied for his doctorate. The young man went to on graduate and a week after securing employment asked to borrow his older brother's car. The latter's car was being serviced so he allowed his younger brother to borrow his wife's motor. The next morning the keys appeared on the hall table with a note apologising for scratching the car which had been left at a local garage to be repaired.
The correspondent's friend apologised to his wife and promised to sort out the damage. However, he received a telephone call in work later that day explaining that his younger brother had also caused serious damage to a neighbour's car. The man promised to reimburse the neighbour and proceeded to lodge €3,000 to the latter's account as settlement of the damage. At this stage it would have been cheaper to claim on the insurance but once the money was handed over it was too late. The damage to the spouse's car was also greater than first reported. The man was not sure whether his younger brother qualified for open driving because he was 30 years of age and the policy specified that the driver must be over 30. Savings for holidays were now committed to the neighbour. When the repair estimate came in at €7,500, the man's wife was furious and demanded that his younger brother be reported to the Garda or thrown out of the house. The brother showed little remorse, merely shrugging his shoulders and mumbling a half-hearted apology. This immediately calls to mind the comment by the Minister, Deputy Brian Lenihan, that the banks should be grateful for the help they are receiving. Will they be grateful? To paraphrase the Bailey brothers: Will they damn.
There was no question of the correspondent's friend securing the money from his younger brother because the latter had huge debts for which the former was guarantor. Moreover, the younger brother was on probation in his new job. Throwing him out of the house would only delay any chance of repayment. Involving the Garda might endanger the new job and the bank might call in the loan for which the older brother was guarantor as they were rolling over the debt at student interest rates - something similar to the European Central Bank rate of 1.5% - but with an option to terminate. If the bank called in the loan to the younger brother, it would have tipped the family finances deeply into the red as a result of the punitive interest rates. The correspondent's friend is still seething over the situation, suffering bad feeling from his wife, children and neighbour and a lack of meaningful compensation from his brother. The latter has as yet no resources worth speaking of.
As a nation, we have a similar problem with banks and developers. The Government acted on insufficient information, as provided by the banks, and made promises in the form of guarantees to deposit and bond holders. Nationalising the banks would be the equivalent of throwing the younger brother out of the house. It might make us feel better but would probably cost more in the long run. Reneging on promises would cause the bond markets to charge higher interest assuming we were even able to obtain loans. NAMA is essentially unfair in this respect but the reality is-----