Wednesday, 23 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 refer to the comments of An Taisce and the environmental aspects of NAMA. The body referred to large scale overzoning in the country, a matter to which the Minister for the Environment, Heritage and Local Government, Deputy John Gormley, referred. An Taisce stated that over zoning and the banks childish lending policies have inevitably lead to the present crisis and hundreds of thousands of empty properties, half finished projects, planning permissions and acres of zoned land. An Taisce also makes an interesting point about the potential for land swaps, where amenities such as parks, sports facilities and allotments could be provided. A number of Deputies have referred to this and I welcome the comments made in this regard.
An Taisce also objected to extension of the life of planning permissions, saying this should not be accepted. I do not agree with this point because in many situations an extension to the life of planning permission would be of great benefit. I am thinking of a school in County Galway, work on which was able to proceed because some work had been started before the end of the five-year planning permission. In a five-year period it is sometimes difficult to start projects before the planning permission comes to an end. I welcome some of the points made but we need to re-examine the matter of planning permission.
I refer to the group of 46 economists at third level colleges who do not agree with NAMA. The point was made by Dr. Alan Ahearne that 250 economists were contacted. If 46 signed up to a position against NAMA, more than 200 economists did not do so. We all agree that the main issue is to get the banking system working. I welcome this Bill. We must be in a position to benefit from the upturn in the world economy in the future. Some countries in Europe and in the United States are beginning to recovery economically. If we do not have our house in order we will lose jobs and market share. I hope will be in a position to take advantage of the global market in the future.
Billy Kelleher (Minister of State with special responsibility for Trade and Commerce, Department of Enterprise, Trade and Employment; Cork North Central, Fianna Fail)
Link to this: Individually | In context
I welcome the opportunity to speak on this Bill. In an economic context this legislation is the most important to come before the House in many years. In the debate in the House we are getting to the bottom of the challenges that face the country. Some of the commentary over the summer was unhelpful, misleading, misguided and based on populist party politics but at least we are getting to the nub of the problems facing this country in the context of the supply of credit and addressing the impaired balance sheets of our financial institutions.
Last September, the Government provided a guarantee to depositors and lenders of the systemically important banks in Ireland. This was a brave decision, supported by some but not all parties in this House. Unfortunately, people used the opportunity to go down the populist route but we are all very well aware of the difficulties that we face as an economy, particularly the financial institutions in the country which are its lifeblood as they provide credit to small and medium sized businesses and to people who want to purchase homes or want access to credit. This is why we are here debating the National Asset Management Agency Bill, which is critical to address the impaired balance sheets of the systemically important banks.
Last week, the Minister for Finance outlined how NAMA will work in the context of valuations of loans and the percentage of haircut on the loans. More importantly, we must accept one premise. The lending that went on prior to the difficulties was, in a way, irresponsible but it was based in a time of continued growth and access to cheap credit internationally, and the banks were using wholesale money markets to borrow credit in the short term for long-term lending into the property market in Ireland. That was fine until the international credit crisis occurred. It is a bit disingenuous for people to point out that all of these difficulties are as a direct result of Government policies of recent years. If the international credit crisis had not occurred the property market in this country would have had a softer landing.
Billy Kelleher (Minister of State with special responsibility for Trade and Commerce, Department of Enterprise, Trade and Employment; Cork North Central, Fianna Fail)
Link to this: Individually | In context
That is a fact, we would have had a softer landing. However, we experienced the international credit crisis and recession and our internal difficulties-----
Billy Kelleher (Minister of State with special responsibility for Trade and Commerce, Department of Enterprise, Trade and Employment; Cork North Central, Fianna Fail)
Link to this: Individually | In context
-----in the context of our property bubble that had evolved.
It is also important to point out that the euro has been a saving grace in the context of ensuring that we had access to the European Central Bank to provided liquidity into the Irish market and that has had a stabilising effect in itself.
Link to this: Individually | In context
For many reasons, the Bill shows the importance of the debate we are having on the Lisbon treaty and the decision the Irish people will make on 2 October. That is an aside but it is critical to point out that the European Central Bank has stepped in to ensure that there is liquidity in the Irish market.
The major banks were capitalised and €3.5 billion was provided to two major institutions. That allowed the banks to try to open up credit supplies to small and medium enterprises.
Link to this: Individually | In context
Much more has to be done on this but everybody inside and outside the House knows that until such time as the impaired balance sheets of the banks are addressed their access to wholesale money markets and lending will also be impaired. I urge people debating this legislation not to make throwaway flippant remarks such as "bail out the bankers and builders". We all know the difficulties we are in but the parties using lines about bailouts know well, as the Minister for Finance outlined on a number of occasions for those who want to listen, that people who owed money to the banks will owe the same amount to the National Asset Management Agency and they will have to pay it back or be pursued for default in the normal way. These populist lines do not do justice to the seriousness of the debate before the House.
Approximately two-thirds of the properties involved are in Ireland, one fifth are in Great Britain and 6% are in Northern Ireland. The remainder of the properties that will be taken into NAMA are in the United States and Europe. A view is being expressed that this is bailing out developers who invested abroad. However, if there is recovery in those economies those assets will inflate in value. Not having all its eggs in the Irish market could be of assistance to NAMA and we should acknowledge that if there is a recovery in parts of Europe or in the United States it may assist in inflating the value of the loans that NAMA is taking on.
We must also acknowledge that some of the lending practices, not only in property development but in all credit, were not done in a sustainable way. People purchasing homes received mortgages of 103% and 105% and stamp duty, car loans and credit loans were rolled into them and that is an unacceptable practice. On another day we must discuss how we as a society should lend to people.
The Bill is very important. As the Minister of State with responsibility for trade, I travel abroad and there is an acceptance outside of Ireland that we are dealing with this in a structured and managed way. It has been complimented by the European Central Bank and the IMF and many commentators throughout the world have stated that Ireland is making critical decisions and is going the right way to address the problems we face in our financial institutions.
Some parties take the view that nationalisation is the appropriate measure as if it were a free ride and that the taxpayer would not be exposed to any risk. As we all know, the opposite is the case; if the banks were nationalised the full exposure would be on the Irish taxpayer. Simplistic views are expressed that there are easier ways to address the difficulties but there are no easy ways to address this and when we have these debates we should debate with honesty and integrity knowing well that there are no easy options in trying to address the huge problems we face.
In recent times we had huge contraction in the Irish economy and projections are for a 9% contraction this year and 3.5% next year. However, there is evidence to suggest that the rate of contraction is slowing. That is no comfort to the many thousands of people losing their jobs and those who have lost them but at some stage this recession must bottom out and there is evidence to suggest that this is approaching faster than was anticipated in projections by the Government and commentary in the Dáil.
We are quickly becoming more competitive. We are an open trading economy and we live or die by our exports. Recently, there has been a major restructuring downwards of labour unit costs in the broader economy. While that might create certain difficulties for workers and employees, it adds to our competitiveness. Recent trade figures suggest we are regaining competitiveness in the international markets. Over the coming months, if we see signs of recovery in the French or German economies or other large economies into which we trade it will provide huge potential for us to gain market share in those areas.
We would all prefer if were not discussing this Bill because the difficulties we face had not come about. However, they are present and the Government has dealt with them resolutely. It has had a clear strategy since the brave decision on 29 September last year on the guarantee of the banks. That was very important as we would not be debating banking issues if that guarantee was not put in place because there would have been a systemic collapse of the major banking institutions in the country. That would have had profound implications for the broader economy, jobs and opportunities.
While we discuss this it is important to acknowledge that some commentators have stated recently that the National Asset Management Agency is the way to go and that other options proposed by political parties, while put forward with the right ideas in mind, cannot address the problems we are trying to address to ensure credit flows to small and medium sized businesses and to people who want to purchase homes. The Taoiseach clearly stated that is the only motivation for proposing this Bill and those who continually slur the integrity of the Government by stating it is a bailout for developers and builders are not being fair and honest in their assessment. This is about addressing the problems in the financial services to allow credit to flow to the broader economy.
I welcome the opportunity to address the House on this legislation which I believe is the crime of the century. It will be unmatched in the history of this State or any State in Europe. The only reason the ECB is bailing out the banks here or putting up the money that the taxpayer is underwriting is because nobody else in the international financial markets will touch them. They know the banking system here is still corrupt to the core. They know that many of the boards and even the executives who were in place when all of this carry-on was happening are still in place now. The Minister of State is right to state that if it was not for the ECB there would be a significantly different problem facing the Irish economy.
The proposed NAMA Bill represents a project of such magnitude that it should not be undertaken without the consent of the people. This Bill cannot be treated like an annual budgetary matter. It is not an annual budgetary matter. It is taking in €40,000 plus from every family in this State without their permission. The Minister of State and the Government do not have a mandate to do that.
The Minister of State does not believe this is a bailout for bankers. It is a bailout for bankers and speculators, and I will explain why. I will deal with the bankers first. The estimation the Minister for Finance gave to this House last week was that there is approximately €88 billion in toxic loans but, of course, he used the atrocious term "hair cut". It is back down to a 47% reduction from the €88 billion which is a figure of approximately €47 billion for the value of the loans.
Like me and everyone here, the Minister of State knows that if one buys a property anywhere in the world, the first question the lending institution will ask will concern the market value of the property. That is what people will go by. They will not ask about one's expectation of the long-term economic value of the property. Any lending institution would laugh at one if one submitted such a notion.
How can we guess the current market value in this State? There is only one piece of solid evidence on which one can rely and it relates to the Carroll-Zoe application to the High Court for protection. ACC Bank is pursuing the Carroll-Zoe group. Zoe agreed, and the judges in the High Court and the Supreme Court accepted, that in the event of a fire sale of the properties, the market value would probably be of the order of 25%.
Why are we paying exorbitant amounts of taxpayers' money? People have their backs to the wall, they are losing their jobs, their homes are being foreclosed on and they are threatened with losing their family homes, yet we are shovelling money from these people - low and middle income families - to support corrupt bankers. This part of our history will be looked on with significant sadness in generations to come.
We talk about nationalising the banks but do not put forward nationalisation as a simplistic measure. It is not simplistic; it is a complex measure but a tried and tested one which has been implemented in many states on a numerous occasions. It is important this State has a state bank. If we had a state bank which operated with honesty and integrity and did not engage in the carry-on of these corrupt bankers, we would not be in this mess because we could have measured the carry-on of other bankers against the proper measures of a state bank. It is a bailout by any measure for corrupt bankers. It legalises and rewards corruption and it should not happen.
In regard to the Carroll-Zoe group of companies, I refer to another document put forward which is of interest in this debate and should be mentioned. Anglo Irish Bank was nationalised in January. It is the Government's and the taxpayers' bank. It is a state bank owned and controlled by the State. According to papers lodged with the High Court and the Supreme Court, Anglo Irish Bank submitted a document stating that it would continue to employ Carroll companies to build its new headquarters in south Dublin at a cost of €68 million. Some €68 million is being spent on a new headquarters for the most toxic zombie bank on the face of the earth. How can the Minister of State justify that? Why has the Government not told Anglo Irish Bank to wise up, that it will not get new palatial headquarters with a cushion for its bum, that it is all right where it is for the moment and that it will not transfer €65 million to it for fine new headquarters? It is scandalous that is being allowed to happen. That bank is under the direct control of the Government which can move to stop that nonsense.
I compare that to the north-east region, and I do not mean counties Antrim, Down and Armagh. In this context, I refer to Louth, Meath, Cavan and Monaghan where there has been a health crisis for decades. There is a proposal to build a regional hospital but it cannot proceed because no funding is available to build it. However, there is funding to the tune of €68 million available to build a new headquarters for Anglo Irish Bank in south Dublin. Somebody needs to look at what is going on because I find that obnoxious in the extreme.
The Minister of State is from Fianna Fáil but the other party in government is the Green Party. What is the Green Party doing? Every now and again it sends a Senator out to the plinth to throw shapes, as Christy Moore would have said, at the media and threaten what it will do with the Government and Fianna Fáil and whether the party will walk out of, or stay in, government. As soon as he finishes throwing shapes, he hurries back into the other House, as do his colleagues in this House, to vote with the Government.
Despite all its fine rhetoric when it was on this side of the House a couple of years ago, the Green Party has lost its social conscience and lost sight of the needs of ordinary people. It does not care whether children get a proper education or whether people in need of health care get it. I do not know where Christy Moore is at the moment but I hope he is noting what is going on in this State because he would write some ballad to cover this episode of our history. I hope if he is about he will do so and record it very soon.
The Green Party told us it will ensure equal sharing of the risk between the bankers and the taxpayer. To me, that means 50:50 sharing of the risk but the Green Party has agreed to the taxpayer taking on 95% of the risk and the bankers taking on 5%. It is throwing some shapes. That is some equality in the sharing. Members of the Green Party are some bunch.
This is a bailout for the bankers. Where is the bailout for ordinary people? Where is the bailout for people who have lost their jobs, who are struggling to feed and clothe their families and who are probably facing foreclosure on their homes? Where is the bailout for that category? What is the Government doing to deal with those people who are at their wits' end to try to feed their families and to survive? I see nothing from this Government to deal with the needs of those people and the crisis they face.
I watched a programme on television on Monday evening last. There were two people on the panel - one represented the bankers and the other the developers. They were two interesting characters. Eamon Dunphy, commentator and media personality, pointed out that one of them was a former Fianna Fáil national secretary and the other, Tom Parlon, a former Minister of State. That demonstrates a firm connection between politicians, bankers and developers. While that extremely unhealthy triangle exists, we cannot expect anything different from this Government and that needs to change. That culture is innate but at long last I believe the people have copped on to it. I hope they have an opportunity shortly in a general election to deal with that issue.
The Minister of State said NAMA is not a bailout for the speculators and the developers. Why does the Bill state that not only will it give speculators money to help them finish their projects but NAMA will become partners with the speculators in finishing unfinished developments? That sounds like a bailout for developers.
Link to this: Individually | In context
What about the hundreds of people working on the building sites? What about the carpenters, plasterers and masons?
Up to this point the Minister of State has shown no concern for the plasterers, electricians or anyone else. He has had scant regard for the very people I referred to a few moments ago. Where is the NAMA for these the ordinary people? What is the Minister of State doing about them? He should not say he is worried about them because he is not. If they are cannon fodder to help bail out the speculators and developers, so be it. However, he cannot tell me this legislation is not a bailout for developers. It is in this legislation that speculators and developers will get funds from NAMA to bail them out. That tells me everything I need to know about the bailout aspect of this legislation.
Where are the crooks, particularly those in the banking sector, who were behind this scam? A visitor from space would be convinced these people would be jailed in Mountjoy or Portlaoise prisons but they are not. Instead, they are in their palatial homes swanning around in their jets and helicopters. This crisis is not impacting on them at all. We have even seen one of them walk away with a pension of €27 million and a €1 million bonus. When will see the result of inquiries into these characters? When will we see them held to account for their part together with the Government and the speculators who created this mess in the first instance?
I accept there is an international dimension to this financial crisis. However, we are in a much worse mess than any other country-----
-----because of the operation of the Government's banks, regulators and polices, above all else. This NAMA business is not some neutral enterprise that will not impact on education, health care provision and looking after our pensioners. It will impact on these because every euro spent underwriting NAMA will be a cost to the taxpayer.
Irrespective of its costs, I do not believe NAMA will work. At least with nationalisation of the banks there would be a sure-footedness in approach. It would provide an instant control to ensure the credit stream goes to SMEs and those who want to develop the economy again. However, as we know, there will be no NAMA for ordinary people.
Sinn Féin's opposition to NAMA is clear. It is not the solution to our banking crisis. It is too costly and too risky. The only correct solution is nationalisation of the main banks and from these creating a State bank that will operate in the interest of would-be home owners and small businesses.
Unlike Fianna Fáil and Fine Gael, Sinn Féin has no agenda of protecting elites who have bankrupted us while continuing to enjoy affluent lifestyles, who have left us with a legacy of ghost housing estates on the edge of our towns, reminiscent of Famine villages. We will stand up for the ordinary people who want action to address the fact that their homes are in negative equity, who want jobs to be created, who need credit to keep their business afloat and who want to see those responsible for this economic crisis held to account.
We need to aspire to a better future, not a return to some less extravagant version of the Celtic tiger. It has to involve dealing with the legacy of the corruption and malpractice of the Celtic tiger, writing off the negative equity portion of the mortgages of those on average and low incomes, redistributing land and housing developments which will be foreclosed on for the public good, social housing, schools, play facilities and other public needs. It has to involve providing education, training and alternative employment particularly for those who were tempted out of education to make their living in the booming construction sector. It has to involve the establishment of a State bank that would support productive entrepreneurial activity over useless greedy speculation and be ethical in its lending practices.
The Taoiseach and the Minister for Finance need to ask themselves why the people do not trust the Government or NAMA. Is it because people believe the economic crisis was caused by the policies this Government pursued? Is it because this Government stood over cheering on and incentivising the reckless greed of developers and the malpractice of bankers? Is it because they know this Government has done nothing as thousands have lost their jobs but is willing to intervene to save the ill-gotten gains of property developers?
It is against the background of repeated lies by this Government that we have to judge the proposition with which we are presented. It lied about the state of the economy in advance of and after the 2007 general election. The Fianna Fáil 2007 general election manifesto was a pack of lies. The Government party had access to information about the state of the economy but chose to mislead and bluff the public. It misled people when it said no one warned about the implications of the property bubble and the economy's overdependency on construction. It lied when claiming there is no alternative. There are alternatives but the Government does not want to know them because they are not bailouts.
The response of this Government to those of us who raised questions repeatedly about the need to address soaring house prices was to ridicule any suggestion that a property bubble was developing. How often did we hear the words "soft landing"? Ministers who said there were no affordability problems were telling bare-faced lies. It is ordinary people in negative equity and now facing repossession who are paying the price for those lies.
I will use the term "untruths" then. Those of us who stood against tax and PRSI cuts because we knew taxes had already been cut to an unsustainable level were told we were economically illiterate. Fine Gael and Labour have some cheek attacking Fianna Fáil now when their own populist policies would have led us down the same route. The media must examine its role in protecting Fianna Fáil by attacking those who sought to challenge the Government's economic policies.
We have a long way to go on this legislation. I will oppose it at every opportunity. The NAMA model is unnecessary and the wrong approach. There is a much better option for the people and the next generation. Nationalisation would be expensive but it would be €10 billion to €15 billion cheaper than the NAMA option. It would be a much more sure-footed approach, would do what it says on the tin and do so quickly when NAMA will still be examining toxic loans in the middle of next year. The banks have already said this will be a long process, that lending will not start quickly and some businesses will go to the wall. That is unacceptable and I will oppose the NAMA legislation on every Stage.
Fianna Fáil in government has made a series of critical decisions over the past year to tackle the largest challenge faced since the foundation of the State. To date the Government bank guarantee, the €7 billion recapitalisation of Allied Irish Banks and Bank of Ireland and the nationalisation of Anglo Irish Bank, have all been vital in stabilising the banking sector.
The Government's approach to the banking crisis is along the lines adopted in Sweden in the early 1990s when its government introduced a State guarantee without which its banking system would have collapsed with dire consequences for the Swedish economy. It did not involve blanket nationalisation of the banks despite claims to the contrary. Only one private bank, Gota, was fully nationalised which happened only after it had collapsed. The Swedish Government also took full control of the already largely State-owned, some 77%, Nordbanken. All the banks remained in private hands. Sweden then transferred the impaired loans to bad banks to clear the banks' balance sheets. This prevented a fire sale of properties and delivered an orderly resolution to the crisis.
The establishment of NAMA is the critical development that will create a functioning banking system and return the banks to liquidity, as happened in Sweden. NAMA will have significant success. The banks will be lending to the real economy by Christmas and will begin to make a profit for the taxpayer. The value to be paid has been defined under the EU framework as the long-term economic value. That means that NAMA cannot pay more than it expects to realise from the loans over its lifetime. There has been much misunderstanding and misrepresentation of the application of the long-term economic value to the present market valuation of property.
In a normally functioning property market, price corresponds to the long-term value of property. In the past six years speculative forces here drove market prices through the roof and as a result they did not correspond to the long-term economic value. This ignorance of the long-term economic value caused by speculative gain in property prices caused the problems in our property sector. If people had been paying what corresponded to long-term economic value the bubble would have been avoided. On the same principle, current property prices do not correspond to long-term economic value. In the same way as upward forces distorted market prices between 2003-07, market prices are distorted now and will continue on a downward spiral and, consequently, there is a need for an adjustment to reflect the inevitable recovery in the market. That is the long-term economic value.
There is a well-informed article in today's edition of The Irish Times entitled, "Nama will do the business" by Bill Nowlan, a chartered surveyor. He writes that he had been concerned that the economic value premium over the current market values would be set at a much higher level but adds that as an asset manager, with more than 40 years experience, he believes "15 per cent over 10 years is an achievable target, particularly with ultra-low funding." This is one of the best articles I have read on NAMA. It is well-informed and written by somebody who has worked for a lifetime in the business. It is worthwhile reading for anyone who wants a good understanding of how NAMA will work.
The bonds the banks receive from NAMA in payment for the loans they purchase can be exchanged for cash at the ECB at 1.5%. NAMA transforms illiquid assets, loans for property, on the balance sheets of banks into liquid assets, bonds, which will result in an injection of tens of billions of euro in cash from the ECB into the banking system and the economy. It is a stimulus package, similar to the quantitative easing packages used in the United States and Britain that we cannot use because our currency is the euro.
Deputy Lee stated in a debate with me some weeks ago on Morning Ireland that the taxpayer would fund NAMA. That is nonsense. NAMA will be self-financing as it will have its own income stream through the collection of interest due from the good loan assets transferred to it. Proceeds from the eventual sale of the underlying assets will also accrue to NAMA and be used to pay off the bonds. NAMA's projections for property prices over the next decade or so will be prudent and realistic. To counter the misinformation put about by the Opposition parties it is important to note that there will be a forensic valuation of every loan that NAMA takes over. If losses do occur the taxpayer will be protected by one or more risk-sharing mechanisms.
As the Minister for Finance, Deputy Brian Lenihan, told the Oireachtas Joint Committee on Finance and the Public Service on 31 August, NAMA will not pay anything other than the current market value for certain assets, where this is the appropriate approach. John Mulcahy, the valuer who has been seconded to NAMA, confirmed this when he said that NAMA will pay for development land in many areas at its agricultural value.
It is also alleged that NAMA is a bail-out or rescue for builders or developers. This is simply not true. Developers who currently owe money to the banks will continue to owe that money to NAMA. Furthermore, as the Minister for Finance has confirmed, developers who are insolvent will be liquidated and NAMA will have the full range of remedies already available to the banking system, including repossession, enforcement of mortgages, the appointment of a receiver and the liquidation of companies.
If NAMA cannot recover the loans, the banks, not the taxpayer, will be penalised. We will see several liquidations of major property companies before Christmas. That is the first thing NAMA will be required to do in taking over loans where the losses have already accrued and the companies or individuals involved are insolvent. It is significant that 30% of the loans transferring to NAMA have been made on properties in the US, the UK and Europe. The US is already showing signs of recovery and the trend is for recovery to follow in Ireland and the UK. We can expect to see a significant improvement in the NAMA loan book over the short to medium term as a result of the international diversity of the properties involved.
Fine Gael, and Deputy Lee in particular, have been advocating letting the banks struggle on for another year before setting up a national asset management agency in September 2010. Does the Deputy not understand that businesses and families around the country cannot wait for another year, that we desperately need to get credit flowing now? Fine Gael's new "magic" wholesale bank would supposedly receive €2 billion in capital from the taxpayer and could borrow €40 billion from the ECB. This is nonsense because the ECB demands collateral. The magic bank would have to raise deposits, and these would almost certainly comprise funds withdrawn from the current banks. Alternatively, the State would have to provide the magic bank with €50 billion to €60 billion in bonds. There would be no benefit to the economy, since the banks have access to the ECB.
A central part of the Fine Gael plan is to set up legacy banks as a way to default on senior bond holders of Irish banks. The bulk of these senior bonds are held by pension funds, insurance companies and credit unions and are covered by the bank guarantee. Defaulting on senior bonds would dry up funding for Irish banks and for the State. Many of those who hold high-risk bonds, subordinated debt, have already incurred large losses. All three banks have already bought back up to €4 billion worth of subordinated debt at a significant loss to the debt holders. International experience shows that the failure of a bank would leave businesses and individuals at the loss of their savings, undermine confidence in the banking system in general and cause serious damage to a whole economy, requiring even greater State intervention to fix.
I had a high regard for Deputy Lee when he was an economic commentator on RTE. What a disappointment he has proved to be since becoming a Member of this House. The Fine Gael proposal has blown up in his face and the Irish public has seen through it. It is quite easy to understand that no credit bureau would lend to one who had previously defaulted on a loan. If one defaults on a car loan, one's credit history is damaged. Similarly, if one defaults to international lenders in one bank, those lenders are not likely to lend to one at another bank.
Fine Gael has further shown its ignorance of the issue at hand by comparing its proposal with the French financing corporation, the SFEF. It does not seem to realise that a similar entity here would be completely redundant. The Société de Financement de l'Economie Française, SFEF, is 66% owned by the French banks. It requires that the banks provide collateral against the loans it makes. A SFEF-type entity here would not make any loans because the Irish banks have already used their collateral to borrow from the European Central Bank. In addition, French banks can issue their own bonds but because France does not have a State guarantee scheme those bonds are not Government guaranteed. The SFEF is therefore a mechanism to provide a State guarantee to the funding of banks. There are other differences between the French financing corporation and Fine Gael's wholesale bank. Fine Gael's bank supposedly would attain funds from the ECB while the SFEF raises funds from wholesale markets, not the ECB.
In what was a very disappointing speech the other day, Deputy Enda Kenny mentioned the proposal made by Dermot Desmond in The Irish Times as being similar to Fine Gael's magic bank. Nothing could be further from the truth. Dermot Desmond's proposal was simply an insurance scheme designed to help bank shareholders. Although I do not disagree with much of what Dermot Desmond has to say, his proposal for an insurance scheme would not work in this country. It was examined and found not to be successful because it would leave the banks with the same problem they now have, whereas NAMA tackles the problem upfront and deals with the issue of liquidity. Unfortunately, Dermot Desmond's proposal would not.
The Labour Party's negativity in the debate has been the most misguided of all. Deputy Eamon Gilmore may have left the Workers Party behind but he took some of its policies with him to the Labour Party. Nationalising the banks in a pre-emptive strike, ending bank guarantees - one of the worst decisions taken by a political party in this country since I came to this House - and giving the "two fingers" to pensioners who have lost everything in the crash are more like the work of Deputy Gilmore's radical days when he was the president of UCG Students' Union than the stuff of an aspiring statesman.
In a debate last autumn I brought to the House's attention the international headlines that were fuelled by the irresponsible comments of Fine Gael and the Labour Party. Those headlines have cost us dearly. The cost of borrowing for Ireland has rocketed. Anyone who has looked at Indecon's recent report on the Lisbon treaty-----
Anyone who has looked at Indecon's recent report on the Lisbon treaty will see how the cost of borrowing has fluctuated wildly during the past year. The Minister for Finance, Deputy Brian Lenihan, may need to consider careful monitoring to ensure, when the banks get back to lending and confidence flows again, that people will be able to borrow as cheaply as possible, and that no excessive margins are made by the banks on money they are borrowing cheaply because of our sovereign guarantees. I am anxious to see some form of oversight being put in place on Committee Stage to ensure that banks act responsibly in the interest of the tax payer as well as that of their shareholders. I am very concerned by what I understand to be the policy of AIB to propose increasing interest rates to 4% above the cost of funds. That is not acceptable to this House and the Minister for Finance must take on AIB on this issue. As a member of the Joint Committee on Finance and the Public Service, some weeks ago I asked that Permanent TSB be brought in to explain why it has put up its interest rates. It is coming in today. I asked this morning that AIB and Bank of Ireland be brought before the committee to explain what their interest rate policy will be when they receive as much as €20 billion in funds between now and Christmas.
Although I understand well that the Minister for Finance and politicians cannot interfere with banking or the market, it is very important that the interests of the taxpayer are paramount in the new regime in Irish banking. There is a need for a culture change in Irish banking and I agree with what Deputy Michael Noonan said yesterday. There is a need for the Irish banking system to be honest. It has not been so on a number of occasions when its representatives spoke to the Joint Committee on Finance and the Public Service. There is a need for significant reform in the banking system and for fundamental change in its management. I sincerely hope that an outsider will be brought in to become the managing director of AIB.
The speeches of the leaders of the Opposition parties in the debate last week reflect the bankruptcy of their ideals. The negativity of their contributions was breathtaking and demonstrated an absence of moral fibre regarding the needs of the country. Fine Gael and the Labour Party are looking for and expecting an election in the near future. God only knows what sort of solution they would bring forward to deal with our banking difficulties. They are so diametrically opposed in their proposed solutions that it is difficult to see how they could come together on the issue. I refer to the pre-emptive nationalisation proposed by the Labour Party along with de-listing from the Stock Exchange while, at the same time, a magic bank is proposed by Fine Gael which will find funny money in some location. This Government has not been popular in recent times but when one looks at the alternative proposed by Fine Gael and the Labour Party the ability of those parties to take on the difficult decisions that are now necessary to bring us through this crisis is called into question.
This is in stark contrast to the position taken by the Green Party. Our Government colleagues have had issues with NAMA but instead of wallowing in negativity like Fine Gael and the Labour Party, the Green Party has been constructive and in my view has improved the proposals significantly with its contributions. I agree with these proposals and I commend the party on the responsible approach it has taken. In view of much of what has now been put across by the Minister for Finance, there is no need to worry about some of the concerns individual members of the Green Party have expressed. These are the facts of the matter as opposed to the irresponsible and inaccurate claims made by the Opposition.
The Government has the right plan for recovery. As the International Monetary Fund stated in June, the policies are right. What is needed for recovery now is a determined execution of NAMA and for the Government to get on with its budgetary plans.
I listened with some astonishment to what Deputy Fahey had to say, particularly his critique of the Fine Gael Party and other Opposition parties. The truth is that Deputy Fahey should hang his head in shame in this House in that he is a member of a party which, after 12 years in office, has brought this country to its knees. It presides over and is responsible for the greatest economic calamity in the history of this State. Deputy Fahey's concluding comments were especially interesting. I would say to the Green Party to beware of the embrace of Deputy Fahey and his Fianna Fáil colleagues. The Deputy's praise for the amendments the Green Party seeks to the NAMA legislation makes it absolutely clear that he and his colleagues believe the Green Party has no influence or impact.
We are debating this Bill for a very specific reason. Reckless banking, grotesque regulatory failure, ministerial and Government incompetence and a betrayal of the public interest lay at the heart of our economic and banking crisis. Bank directors are directly responsible. They were obsessed by personal status, dividends and salary or, as some liked to put it in more highfaluting terms, "compensation", for lording over banks in directors' boardrooms. They were more concerned with their own self interest than in ensuring the continued viability of the banks of which they were directors. Due to their irresponsibility, not a single person in any of the covered institutions who was a director in our banks prior to 2008 should today sit in the boardroom of a single bank.
Institutional investors also have a case to answer. Institutional investors who administer pension schemes and who dominate the annual general meetings of public companies and who are paid excessive fees for managing pension funds clearly took their eye off the ball. They were more in cahoots with the directors of the banks than they were interested in protecting the interests of pension-holders and the pension funds they administered. They failed to exercise any proper due diligence on behalf of those who contributed pension moneys on an annual basis to ensure that the products in which they were investing truly reflected the real value being given to them on the stock markets.
With regard to developers, arrogance, greed, hubris replaced all relevant commercial principle. They boasted not about which of them could secure the most commercially astute and viable deal but about which of them could raise the biggest loan. Bankers, with an eye on their bonuses, chased after developers across the length and breadth of this country with the enthusiasm of the Viagra salesman stalking the over-70s.
Deputy Fahey talked in this House as if Fianna Fáil has not been in Government for the past twelve and a half years. Political accountability for where we now find ourselves, political accountability to this House for the gross incompetence, not just of the previous Fianna Fáil-led Governments but also of the present Government, is something that neither Fianna Fáil nor the Green Party is able to recognise or respect.
Deputy Brian Cowen as Minister for Finance, will go down in history as the worst Minister for Finance who ever held office in the State. He sleepwalked through four years in office as bank lending expanded to an unprecedented level, property prices grew to insane levels and public sector expenditure increased to an entirely unsustainable level. Expenditure substantially in the years from 2003 onwards depended on stamp duty received as a consequence of the growing property bubble. As Minister for Finance he essentially became addicted not just to property but to annual increase in property values to meet the totally insane and unsustainable levels of public expenditure over which he had ministered.
Then as the hurricane clouds appeared on the horizon, as Minister for Finance he remained in denial of imminent disaster. In his 2007 budget, when property had stopped selling, when it was absolutely clear that the stamp duty on which the State was so reliant for meeting public expenditure was going to dry up, he increased current expenditure by 10%. That was done by a Government of which the Green Party was part and where two Green Ministers sat in Cabinet. The difficulties which confront the State today are compounded, not just by the foolish budgetary decisions made in 2007 but by the state of paralysis which Deputy Cowen, both as Minister for Finance and then as Taoiseach, seemed to be locked into throughout 2008. As piecemeal decisions were made to confront the increasing economic difficulties and public sector expenditure, no overall coherent strategy was ever articulated as to where the State was going. Outside of dealing with the issue of NAMA and the banking difficulties which confront us, it is still not clear what, if any strategy the present Government has.
The New Orleans and Irish experience have uncanny similarities. As the hurricane approached New Orleans, George Bush first ignored the danger signals and warnings and when the levees broke and the city was flooded, he went into denial and failed to act until far too late. As the economic and banking tsunami approached our shores, Deputy Cowen, as Minister for Finance, ignored the danger signals and warnings and when our financial levees broke, he went into denial and it has taken him far too long to act to try and protect jobs and to ensure that we make the structural changes necessary to stabilise our economic system and to travel down the road to recovery. As a consequence, there are now almost 450,000 unemployed and we heard yesterday that net emigration is taking place from our shores for the first time for well over a decade.
There is an essential need to get credit and liquidity flowing into our economy. The Fine Gael critique of the NAMA legislation which Deputy Fahey ignored is that there is nothing in the legislation which guarantees that credit will start flowing, that small and medium-sized businesses will be able to access the funds they require to remain in business and preserve jobs. There is no guarantee of any description that when funds are made available to the banks, the banks will not simply retain those funds to improve their capital position. There is nothing in the legislation that will ensure that within the next 12 months there will be any major economic change in the state of this country because of the timeframe that will be required after this legislation has passed through both Houses of the Oireachtas - as seems inevitable with the support of the Green Party and Fianna Fáil Deputies. It will take very many months for the structure prescribed by NAMA to bring about the effect intended of making funds available to our banks to even test whether there is any reality in their increasing liquidity and credit. There is a real timeframe problem with this proposal which Fine Gael's proposal for a good bank addresses and which would facilitate liquidity flowing at a far earlier point than is even envisaged in the context of the Minister's proposal.
With regard to the financial institutions that are being bailed out, 40% of the borrowings relate to Anglo Irish Bank and Irish Nationwide Building Society. Both are basket cases, neither of which will provide credit or liquidity to the business sector. These are two banks, operated by chairmen and chief executives in the shape of Mr. Seán FitzPatrick and Mr. Michael Fingleton as if they were Russian oligarchs running financial institutions and manipulating those institutions for their own personal benefit. Reckless banking is at the very heart of our economic collapse and the origins of the property bubble commenced in 2002 to 2003. Anglo Irish Bank was the rogue bank which led the way and the rest, like sheep, subsequently followed. In the period 2002 to 2003, ratios of loans to customer deposits started to rise and then continued to rise beyond anything sustainable. Basic banking and regulatory prudential principle meant that the ratio of loans to customer deposits should have been maintained in the region of 80% to 90% but from 2003 onwards such principles were totally abandoned. Exceeding 90% meant exposing the liquidity and solvency position of a bank but from 2003 onwards, Irish banks turned to highly volatile inter-bank markets to obtain inter-bank deposits. As Peter Matthews pointed out in last Sunday's edition of The Sunday Business Post, analysis of the most up to date published accounts of the six Irish banks and building societies reveals loan to customer deposit ratios rose to their current weighted average of 173%, far above the 100% maximum limit. The scale of the failure on the part of the banks, their directors and regulators, is breathtaking. This failure also lies at the door of a Minister for Finance in the shape of the current Taoiseach who should have listened to the warnings being voiced by those who knew better but who chose to ignore them. In conjunction with other members of his party, he chose to deride and abuse anyone who suggested that the level of borrowing from our banks, the extent of the property bubble and the level of borrowings which individuals were having made available to them were creating a huge problem.
Now we have the NAMA proposal and the concept within it of long-term economic value. This has been discussed at great length in this debate. It is difficult enough in the current climate to ascertain the current market value of a property. Long-term market value is nothing other than hope value. Various factors, detailed in the legislation and draft regulations, to which regard is to be had to determine long-term economic value are the same factors which so-called experts relied on to tell us, in 2005 and 2006, that Irish property values were reasonable and based on true market value and that if there was any cyclical change there would be a soft landing. Long-term economic value is nothing other than a journey into the unknown.
Under the terms of this legislation, the concept of long-term economic value is to be applied with regard to land. The Minister is supposing, as Deputy Fahey did, that there will be a 10% increase, at least, in the value of property over the next ten years. There may be in some property but who says there will be in land? Vast areas of former agricultural land has been rezoned and some has been bought in the hope of obtaining a rezoning. Land has been bought at enormous prices with huge borrowings from financial institutions. Who would bet that vast tracts of that land would increase in value by 10% in the next ten years. That bet is being made by the Government on behalf of tax payers.
The Government has got many of its figures wrong. The Minister insists that NAMA will meet its own debt servicing costs. He is recklessly ignoring the fact that the 1.5% introductory discounted rate on which he bases his calculations for the €54 billion in new borrowings will, inevitably, increase as the European economy comes out of recession. The long-term forecasted ECB rate is 3.8% over the next ten years. When the agreed 0.5% over the main ECB re-financing rate is added, average debt funding will cost 4.3%, it is estimated, over the next ten years. This will produce running costs of approximately €10 billion in respect of NAMA in the next ten years.
In the context of the value of the loan book, we are told that €9 billion is rolled-over interest owed by developers which has not been paid to the banks. What we do not know, and what the Minister has not yet told us, is the monthly increase in this roll-over figure. How, for example, will it stand in 12 months time? Will the roll-over of €9 billion have reached €12 billion in 12 months time? For how long will the roll-over be permitted? These are issues of substantial relevance which remain to be clarified.
In the context of long-term economic value, there is a contradiction at the heart of the legislation. The provisions which allow a price between the market and long-term economic value to be used in the determination of value of lands are entirely different from later provisions in the Bill which provide for the vesting of property in NAMA when property owners fail to meet their financial obligations. Where property is vested the courts are asked to determine the likely sale price of the land or property if sold within three months of the court proceeding. The courts are being asked to determine the current market value at the time of an application for vesting. If NAMA has taken over land based on a long-term economic value and if a developer finds himself in a court system where the land may be vested in NAMA at a lower level of value and wants to protect other property or assets used to guarantee bank debt, what will happen? The developer will demand access to information to ascertain the value NAMA attached to the land when the loan was taken over. NAMA will give a bank X amount for the loan in the context of bonds which can be cashed, but will seek to attribute to the developer a lower value. There is an inherent contradiction in the value provisions in the legislation, which is an invitation to litigation. It will facilitate developers ensuring substantial delays in NAMA taking action to have property vested in it when there is a default in repayment.
There is no indication in the legislation of for how long NAMA will allow loans to be rolled over. When property has collapsed in value and loans continue to roll over, the debt increases. For how many years will roll-over be allowed? There is no clarity to this. What happens if a developer comes to NAMA and says, "You can take my property. You do not need to take a court case. I will vest it in you but please do not proceed on foot of any guarantees". What direction is there in the legislation to clarify the action NAMA might take in that context?
There have been extraordinary revelations about the behaviour of our banks. In the United States, within months of investigations having been conducted, bankers were arrested and some imprisoned. In the context of the conduct of certain institutions, in particular Anglo Irish Bank and Irish Nationwide, it is extraordinary that no prosecutions have been initiated. I am conscious of the importance of saying nothing in this House which might prejudice a prosecution. However, I wonder what is the reason for the delay. Is it that those investigating the accounting systems and the conduct of people within those institutions have discovered that much more was known by the regulator and the Minister for Finance of the day than has been disclosed? Would a prosecution be an embarrassment and is that why it is being avoided? Anglo Irish Bank can best be described as a rogue bank. Is there a conflict of interest? Is it the objective of the Minister at some stage in the future to float off this bank again for public quotation on the stock market and is there a conflict of interest to the extent that there is a concern that if prosecutions are taken they may inhibit the possible future flotation of a reconstituted Anglo Irish Bank? If that is the case it should not be the case.
The general public find it extraordinary that a year after so many revelations not a single prosecution has taken place. In the United States one banker, Mr. Madoff, has been sentenced and imprisoned. In Ireland, those responsible for the debacle we are confronted by have, largely, made off to Marbella and Puerto Banus and are celebrating their golden handshakes on the golf courses in that region. That is not acceptable and the time has come for the Minister for Justice, Equality and Law Reform to come to the House and tell us why these investigations are so slow and whether prosecutions are anticipated? Anglo Irish Bank is a nationalised bank controlled by the State. There should be no difficulty in the investigative authorities accessing all of the information required to address the problems that have arisen and the dreadful disaster that the bank has brought on the country.
It is with great pride that I support my Minister, Deputy Brian Lenihan, in introducing this wonderful and badly needed rescue of the economy, property developers and the banking system. NAMA is not a Fianna Fáil bailout for banks, which is the accusation. NAMA is the European Central Bank's carefully planned rescue of the Irish economy, preventing the International Monetary Fund, IMF, from needing to do the same for Ireland. When NAMA takes bad property loans worth more than €90 billion from the banks, it will deposit €60 billion in NAMA bonds, which will be exchanged in Frankfurt for ECB funds.
NAMA's bailout has been welcomed by all international agencies and investors as being good business for Ireland and the EU. Much nonsense has been stated, but the Minister for Finance's courage, innovation and imagination in putting NAMA in place have been greatly admired. Many people of all parties and political persuasions are proud of his efforts.
The ECB has been generous to Ireland since the crisis arose. Some €100 million in European Investment Bank money has been given to Ireland at a rate of 1% plus the banking institutions' margin. This has kept the country going and was achieved through the negotiations of the Minister for Finance. The ECB supports our proposal.
Some 30% of the developments in question are in England, a sterling area, France, Holland and many other European countries. I suspect that developments in the former eastern bloc, now a part of the EU, are not profitable. We can look back on the past 20 years of the world's economy, particularly England in the 1980s under Mrs. Thatcher. When Canary Wharf - now the UK's pride and joy and the place people visit when they travel to London - was developed, the state of the UK's economy was similar to ours. Many developers went bust and property investors were in trouble. Canary Wharf has since become London's showpiece.
Before the unification of Germany, Bonn was the capital of West Germany and Berlin was the capital of East Germany. With unification, considerable investment in Berlin occurred, even though many developers and bankers went bust. This was news in the financial newspapers, including Ireland's. Since then, it has all come right.
There is a bright future for what we are doing because there will always be better days in the economy. Dublin, Cork and many large towns will not go wrong, but there are land banks in villages and small towns that must be rescued. NAMA will be a profitable organisation. It is an innovative measure and, in two or three years time, will make an unexpected return to the Exchequer.
I am appalled and disappointed at the attitude adopted by Fine Gael, the party of business, which attacked share prices last week. Those prices are important to small investors and I am sure there are more Fine Gael shareholders than Fianna Fáil shareholders, knowing the structure of the former and the background of its members.
It is important that small shareholders be looked after. I am a shareholder in both of the banks in question. Many people have depended on their dividends in recent years. I know of several wheelchair users who invested their money in organisations like the banks, but have no incomes now and are dependent on the State for their security and livelihood. This is a sad state of affairs. We must get the banks back on stream soon.
Nationalisation has been mentioned, but that is rubbish. No good has ever come from nationalisation because it removes incentive from people's work. Moreover, we would need to pay shareholders, even though the price may be small, and take on the banks' large debts. What occurred to the banking system is clear, namely, that there was too much competition in the system. On 9 July, my party was taken aback by a speech I made in the House because I stated that we should have higher levels of capital gains tax on developments.
After the Northern Rock problem came Bear Sterns, Lehman Brothers and AIG, the insurance company, in the USA. The whole world fell inwards. It was not all our fault. A small open economy surrounded by water, we were the victims. Competition meant it was like buying boots and shoes, in that one could go up and down a street from one bank to another, submit a proposal to build 50 houses in one place and buy 40 acres up the road. Foreign banks would say, "Fine", but they are now taking their money back, as we can read in the newspapers every day. If people went to the local bank with which they always dealt, it would have told them that it could not lend the money and they would show the letter from the foreign bank saying that it would. The local bank had no choice.
We landed ourselves in this trouble. It is ridiculous that we were building 90,000 houses per year for a population of less than 4.5 million people. No one on either the left or right side of the House said, "Stop". Shopping centres, hotels and business parks were being built on tax breaks. It was unreal. I stated this clearly, but I was seen as having the wrong view. That we were going to go astray was as obvious as the nose on my face. I must blame the Opposition as much as the Government because it is meant to keep us on our toes. There was a game of poker between McNamara and Dunne in Ballsbridge. Many other property developers were doing the same. This is what landed us in this trouble. Competition in the banking system was the problem. Unjustified figures for properties and land were being thrown around and nothing was done.
I have a problem with Sinn Féin's ideas on nationalisation, but it is a small party. If its comments were popular, the entire country would vote for it.
The matter of internal auditors will definitely get into the Guinness Book of Records. The internal auditor of the Commission of the Houses of the Oireachtas has retired or resigned. It is the first internal auditor I have ever heard of who resigned. Where we went astray was with the internal auditors. Internal auditing that forms part of a company's financial structure must be sorted out. Internal auditors are usually appointed by management and the chief executive will have a say in the internal audit. Until such time as internal auditing is set aright, it will be no good.
I come from Mitchelstown, which had a fine co-operative society that got involved in development. We had three directors from Dublin, Mr. Michael Jacob of Anglo Irish Bank, Mr. Liam McGreal of where I do not know and Mr. John Fitzgerald, the famous former Dublin city manager. They were involved in directing a company called Reox, which is facing liquidation and bankruptcy and has destroyed Mitchelstown, Mallow and north County Cork, as the Acting Chairman is aware. I went hoarse giving out about it because I knew what was occurring. Mr. Fitzgerald was a Dublin city manager and received more directorships. There is no point in appointing bank directors if they do not have good business backgrounds or if they have failed elsewhere, and they have failed. There is no advantage in appointing directors from government into banks. If they do not know where they are going, they are wasting their time. I am not friends with any bank director and no longer know any. Let shareholders appoint directors and interrogate them more at annual general meetings. AGMs of banks and businesses have become a joke where one cannot ask a question without being shouted down. That situation must be sorted out. The standing orders in those places have been changed, but whether we can change in this House, I do not know.
As I stated one year ago, auditors are a disgrace. They have put us where we are. If the auditing system does not change, we will go nowhere. The structure of appointing auditors is suspect because they are appointed before an AGM.