Tuesday, 13 October 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 am not happy to speak on the legislation before us which has been debated in the House for a number of weeks. When one talks to people about the Bill and NAMA, one factor emerges, namely, the lack of Government regulation in recent years. There was reckless behaviour on the part of a corrupt Fianna Fáil Government, and builders, bankers and developers were in the pockets of the Fianna Fáil Party for far too long. What happened was inevitable.
Since I was elected to this House in 2002, my party's finance spokesperson, Deputy Richard Bruton, has spoken in one budget debate after another against Government policy and about what was bound to happen. One heard what Ministers, party leaders and Taoisigh said in recent years. Charlie McCreevy told us to party on. The former Taoiseach, Deputy Bertie Ahern, said people who talked down the economy should commit suicide. Deputy Brian Cowen said we would have a soft landing. Patrick Neary said we were sound financially. These quotations are from recent years. How out of touch were the people I quoted? This shows how out of touch the former Taoiseach, Deputy Ahern, is. I blame him for causing much of the trouble we are in now. He had the cheek to appear on "The Late Late Show" last Friday and say he might run for the Presidency. He said he would think about it because he would be 60 in some months and would see what the story was. Allow me to give a message to the former Taoiseach. He would not win the presidency of a tiddlywinks club because people have no respect for him or his past. That is my opinion of the former Taoiseach.
Let that message go out loud and clear to him this evening. That man was out of touch for the past number of years. It annoys me, as a public representative, to consider what happened in the Galway tent with developers who gave €1,000 for a plate of dinner. Holy divine God. When people are hardly able to afford a plate of dinner it is extremely annoying to see developers paying €1,000 merely to have dinner with a Minister or a Taoiseach to get favours from them. That is exactly what happened. They got favours and that is the trouble now. People outside this House are equally to blame because they returned Fianna Fáil to power year after year.
Very many people have been blamed for the position they now find themselves in but I feel sorry for them. The person whom I really feel sorry for is the hard-pressed taxpayer who must pay for the mistakes of this Government. It is annoying to see what is happening to the ordinary taxpayer who is worried about putting a son or daughter through college, paying the mortgage and putting food on the table. This person is paying for the mistakes of bankers, developers, the Financial Regulator, and, to a lesser extent, the Governor of the Central Bank, John Hurley. Mr. Hurley took a softly-softly approach in which everything was okay when it was not. It has to be one thing or the other. He was afraid to bang on the door of the Minister for Finance and say we were in trouble, there were red lights and we should take action. He was afraid to tell the Minister what the situation was. The Financial Regulator, Patrick Neary, was paid an enormous salary and was there to do a job which he did not do very well. From a layman's view, this was the man who should have reported to the Minister for Finance and the Taoiseach of the day, Deputy Brian Cowen. These people have a great deal to answer for. We are going though the present situation because of their reckless behaviour. If one compares Ireland with Canada or Spain, those countries are not in the position we are in because they took action and had regulation in place. They did not let things or people get out of control because they had stricter regulations.
Regarding borrowings and people getting 100% mortgages, that was great at the time. People had the new house, the tarmacadam, the new car and everything of that kind. This Government has not listened to layman's language in recent years. It is great to receive 100% mortgages but not great when one has to pay back and times are tougher.
A constituent came to me some weeks ago who was unable to afford to pay his mortgage and was afraid to face the financial institution which had given it to him. I set up a meeting with the bank, whose name I will not mention. At the meeting the bank told him that if he missed four staged payments it would be obliged to bring him to court. That would take perhaps four to six months and he would then be evicted from his home because the bank would take it from him. At the same time, Messrs. Fitzpatrick and Fingleton can walk away with golden handshakes, not at all worried about the people who are unable to pay their mortgages. I realise I am not talking about the NAMA Bill now but I am saying what the layman on the street is saying about Fingleton and Fitzpatrick. These are two of the biggest gangsters ever involved in banking institutions and because of them we have to bring forward the NAMA legislation. There is one law for the rich and another for the poor. That is the only way I can describe this.
Prior to the nationalisation of Anglo Irish Bank, speaking on "Morning Ireland", Mr. David Drumm, the former chief executive officer of that bank, said that merging with another bank had not been on the bank's agenda. He also said the bank's executives would see a pay cut next year, no bonuses would be paid and salaries would be frozen. He said this would result in a 50% to 60% cut in annual remuneration for the bank's top management. I have a question for the Minister of State, Deputy Tony Killeen, and his officials and I would like the Minister to address the issue tomorrow in his closing remarks. What salary cuts, bonuses and pay freezes have occurred among the top management in the five banks covered by the NAMA legislation since it was decided the Government would look after those banks? People in the private sector have taken severe pay cuts.Workers in the public sector have taken a pay cut, even though it might have been an indirect one via the pension levy.
Tomorrow evening I want the Minister for Finance to address a matter of the utmost importance. What pay cuts or pay freezes have been taken or accepted by top management in all of the banks covered by the Government guarantee? Have they received bonuses? The former Taoiseach, Deputy Bertie Ahern, will never be President. The people are waiting and will have the last say on that man.
One needs to regard the proposed administration and day-to-day operation of NAMA as fundamentally flawed. Those who were proportionally most responsible for creating this financial mess are now at the forefront in navigating the economy into clear waters. Once again, it stretches the Government's credibility to breaking point to believe those who have made such a mess of things should continue to have their hands on the levers of power. This is becoming a sick Irish cliché - absolutely no accountability and no responsibility, an Alice in Wonderland system of government.
An important consideration in planning for the future of the economy must be a proper review of why this occurred and why it was allowed to occur. An inquiry has been mooted by many, including Mr. Colm McCarthy. The Minister for Finance seemed open to the idea, although he was never particularly enthusiastic about or seemingly driven by it, aside from his recent public admission that he shared the public's frustration at the apparent ease with which bankers were circumventing the legal process. There is a good precedent, namely, that set by the late Deputy Jim Mitchell's Oireachtas committee inquiry into the DIRT scandal. The House has the tools to carry out this work. The legislation should create an independent inquiry under the jurisdiction of the Oireachtas to investigate what went on in the banking sector. Such an inquiry would offer the Minister the opportunity, even at this late stage, to retrospectively bring an end to the practice whereby the banking tail wags the economic dog.
In his presentation of NAMA the Minister relies on assumptions for his proposal to work. His figures stand and fall on the assumption that we have reached the bottom of the decline in value in the property market. I appreciate that this must be done but there are so many variables in his conclusion that we cannot be sure he has called it correctly. I fail to understand the formula he and his officials applied in arriving at their conclusion in terms of market value. It begs the question of how comprehensive and wide-ranging is their analysis.
The Minister has made much of merely requiring a 10% increase in property values to allow NAMA to break even. This is all fine and it achieved the headlines it set out to grab, but it is missing the full story. If the Minister is wrong in saying we have reached the bottom of the market, the climb to break even for NAMA will be steeper and consequently cost the taxpayer even more. The rigour of his analysis must be compromised by the oversupply of properties. Recent reports show that we have enough land zoned to cater for the needs of generations. The Minister need only drive through any constituency to check the availability of commercial space and land zoned residential.
The supply side of the equation is more than catered for, but the demand side has been badly wounded. The aim of all of the Government's actions since the last budget has been to quench demand in the economy. The increase in VAT, the fact that the only costs which are rising in the inflation index are those associated with public services, income levies and many other factors will become more significant as we navigate our way out of recession. Demand and spending as economic tools are and will become important parts of NAMA. The current level of commercial rents is untenable. I have no doubt that retail outlets will become part of NAMA-controlled properties. Sales have collapsed around the country and the level of unemployment in the retail sector has soared. However, rents fixed at the height of the property bubble remain the norm.
NAMA will not solve the crisis in access to credit. The economy simply cannot recover without a functioning banking system but NAMA will do little to ensure credit will flow. Credit is the lifeblood of business which keeps it ticking. This has been the most important issue facing every small and medium-sized business for the past 18 months, yet the Government has failed to tackle the problem. Jobs are being lost daily because of the banks' inflexibility. Confidence in the economy will not recover without access to credit.
NAMA is being proposed as the solution. Yes, it will give financial institutions access to extra funding from the European Central Bank, but as Mr. Colm McCarthy and Professor Patrick Honohan have stated, there will be no guarantee that this extra funding will be used to finance additional lending in the economy. The four main banks alone are indebted to other non-Irish credit institutions to the tune of €140 billion. With NAMA, there will be no obligation on banks to lend money. Their only obligation will be to service these expensive loans. Therefore, there is no guarantee that the credit for which businesses have been screaming for the past 18 months will be provided.
Fine Gael has proposed the establishment of a national recovery bank. There would be many advantages in creating such a bank instead of NAMA, the greatest being that new State funding for the banks would ensure almost immediate lending in the economy. Our model would ensure the taxpayer would be purchasing higher quality loans, as opposed to the highly questionable toxic developer loans being acquired under NAMA. A national recovery bank could be up and running in a few weeks. The national recovery model has been introduced in France where it has been highly successful, as evidenced by the encouraging signs emerging in the French economy. The good bank proposal would be the most effective, quickest and fairest way to get credit flowing again. Even if NAMA goes ahead, we should still establish a national recovery bank to provide for the economy's credit needs.
Any economic recovery will be based on confidence, but the NAMA proposal does not inspire confidence. There has been the expected spin on the whole process since publication of the Bill, indicating it is "the only show in town" and "the best option of a bad lot". The Government has attempted to rubbish other potential solutions with its ideological attachment to protecting those with whom it has been so closely associated during the past 12 years.
The Government has obviously studied the approach adopted in the United States to the economic crisis during the past 12 months. The Minister would do well to heed the words of Mr. Larry Summers, director of the US National Economic Council and top economic adviser to President Obama. As president of Harvard in 2006, he told his students, "Be mindful of those threats that come from elevating the value of consensus, conformity and comfort above the value of truth." It is impossible to accept that this legislation is based on the truth and I look forward to voting against it tomorrow evening.
I am pleased to have the opportunity to contribute to this Second Stage debate. We need to acknowledge the reasons our banking system is in such a sorry state and the reason an initiative on the scale and of the complexity of NAMA is required to assist the banking system in order that it may contribute to economic recovery.
Some of the factors are truly global in nature, such as the collapse of Lehman Brothers in September 2008. Those events are completely outside the control of anyone in this jurisdiction. However, the frailties of our financial institutions were merely exposed by what followed the Lehman Brothers collapse. The weaknesses were there but they were not apparent and those weaknesses were built up over a number of years, characterised by gross excessive lending, particularly to the property and construction sectors. It is clear that for many years the Irish banks were accessing cheap credit in a poorly regulated global financial system. The banks engaged in a frenzy of property-related lending and exposed the entire banking system and indeed the entire Irish economy to enormous risk which has now crystallised before us and is a risk which must be addressed.
There is no doubt that the banks became overly reliant on borrowing on the inter-bank wholesale market and moved away from the traditional system of banking whereby banks relied on the level of deposits on their books in determining their level of lending. The practices which prevailed in our banking system, coupled with the collapse of the global financial system, have resulted in the appalling vista we now face with regard to our financial system.
I wish to acknowledge the many thousands of people working in the Irish banking system, the hard-working officials, those working at the lower and middle levels in various financial institutions. They work hard and for modest pay and they are not responsible for the excesses and the gross mismanagement of the institutions which prevailed in recent years.
The blame is not solely with any single financial institution but the recent crisis has brought a particular focus on one institution, Anglo Irish Bank. In his contribution on Second Stage, the Minister for Finance referred to the shameful behaviour of some senior executives at Anglo Irish Bank.
I refer to the breakdown of the €77 billion book value of the loans which are to be transferred to NAMA. Of the €77 billion, Anglo Irish Bank accounts for €28 billion which is the highest amount among the institutions; the second highest loan amount is Allied Irish Bank at €24 billion; Bank of Ireland has a loan value of €16 billion; Educational Building Society has a loan value of €1 billion and Irish Nationwide Building Society has a loan value of €8 billion.
I refer to the article by Simon Carswell in The Irish Times entitled "The Anglo 10". He set out in clear terms the details of what happened and the consequences for the Irish taxpayer. The origins were in the unwinding of the contracts for difference arrangement between Seán Quinn and Anglo Irish Bank. This was an indirect stake of 25% of which he subsequently wished to acquire only 15% with the remaining 10% of shares threatening to flood the market, as feared by the senior executives of Anglo Irish Bank. They took action at that time to shore up the share price of the bank. It has transpired they loaned a total of €451 million to ten customers who are now known as the golden circle or the Anglo ten. Those ten individuals were loaned sums which, as of last January, stood at between €9.7 million for one individual and up to €56.5 million for another individual. The Irish Times article revealed that the ten loans totalled €392 million in January 2009.
The real scandal is that three quarters of the sum of money was borrowed on a non-recourse basis. The only security given for the loans was the shares themselves. The whole purpose of the transaction was to shore up the share price to prevent 10% of Anglo Irish Bank shares reaching the Stock Exchange with what the executives would have regarded as very serious consequences for the bank. Those shares are now worthless, given the nationalisation of Anglo Irish Bank. The bank has had to write off €308 million of that €451 million because the loans were given on a non-recourse basis with the shares themselves being the only security. By its failure to seek any other security or personal guarantees from those customers the bank was utterly reckless in its dealings. The sum of €308 million which has been written off is effectively money down the drain and is a direct hit on the Irish taxpayer. An artificial arrangement to buy shares in the bank to prevent them reaching the market is a distortion of the market and I look forward to the outcome of the investigations currently underway in that regard.
The people responsible for those transactions must be held accountable. This is not the only matter at Anglo Irish Bank which is the subject of such investigations. The concealment of directors' loans over a number of years is an extremely serious matter which relates in particular to the former chief executive of Anglo Irish Bank, Mr. Seán FitzPatrick. These loans were not reported for many years, were deliberately concealed from the market and had a distorting effect as a result.
A third aspect currently the subject of investigation relates to the lodgment of up to €7.5 billion from Irish Life and Permanent to Anglo Irish Bank, the sole purpose of which was to massage and distort the picture at Anglo Irish Bank at the end of its financial year. There can be no more serious abuse or distortion of the market than these transactions. The sole purpose of that transaction appeared to be to improve the appearance of Anglo Irish Bank's balance sheet.
As a result, the State has nationalised the bank and has had subsequently to inject €4 billion to keep Anglo Irish Bank afloat. This is money we will certainly never see again. There is no question but that AIB and Bank of Ireland can and will recover but only a hopeless optimist would believe that Anglo can recover, such is the legacy of damage from its former executives. Deputies from across the floor of the House will argue that the bank should be allowed go under and the losses should be crystallised as being a better outcome for the State. This would not be the case. That option was examined but the result for the taxpayer would have been far more devastating than investing that €4 billion, even with the prospect of having to invest further moneys in Anglo Irish Bank which now seems to be avoidable. There has to be accountability. Justice must be done and must be seen to be done in respect of those who managed Anglo Irish Bank in particular in such a reckless manner. Shoddy practices and reckless lending were not the sole preserve of Anglo Irish Bank but based on the information in the public domain, the lowest standards in financial institutions applied in Anglo Irish Bank. It would be timely for the Director of Corporate Enforcement, Mr. Paul Appleby, to make a statement outlining the progress he has made on the investigation into these transactions at Anglo Irish Bank. Last February, officers attached to the Garda fraud squad entered the bank's premises and seized certain documents but there has been no update since then. The public are furious to see those who were responsible for bringing the bank to its knees swanning around and seemingly immune from the justice system. This issue must be dealt with if we are to have any prospect of restoring public confidence in the banking system. I call on the Director of Corporate Enforcement to make a statement, even if only in general terms, about the progress to date of the investigations into Anglo Irish Bank.
Since September 2008 the actions taken by Government have worked well. The guarantee scheme was introduced in September 2008. This helped to stabilise the banking system and the banks are now beginning to raise funds on the international markets independently of that guarantee. This is the first important step in a gradual process of the banks removing themselves from sole reliance on the State guarantee as a means of accessing credit. The State will receive €1 billion from the banks further to the guarantee scheme. None of the Irish banks has defaulted on any repayments and the guarantee has not been invoked in that respect. AIB and Bank of Ireland have also been recapitalised and the State is receiving €560 million per annum on foot of the recapitalisation of those institutions in respect of the 25% warrants the State has taken. The State has made significant gains from those warrants because of the increase in the share price since that time.
It is important to point out that none of this has been painless for the banks either. The share prices of the main banks have effectively collapsed despite a small recovery in recent times. In addition, subordinated bondholders have also been hit with a large amount of subordinated debt bought back by the banks in recent months at a significant discount. The outcome of these transactions was a loss representing approximately €4 billion to those bondholders and a material contribution to the capital required for the institutions that would otherwise have had to come from the State and, by extension, the taxpayer.
There is no easy way of dealing with this crisis, no panacea and no painless solution. We must identify what is regarded as the best solution, move on and implement it as quickly as possible because the reality is we must get funding flowing through the banking system again. It is an essential component of economic recovery and it cannot happen quickly enough.
The Minister took a very positive step in publishing the draft Bill at the end of July. It allowed a robust public and political debate in August and September, prior to the resumption of the Dáil, and I believe we will end up with a better NAMA Bill at the end of this process as a result. The Minister appeared before the Joint Committee on Finance and the Public Service at the end of August to go through the Bill. Since the Bill was published the cost of borrowing for Ireland vis-À-vis Germany, regarded as the benchmark country, has narrowed in recent months, which is welcome. We could have endless academic and political debate and we should debate the matter at length given the seriousness of the issue but we also need action and we must move ahead with whatever agreed solution is to be put in place. There is a direct contradiction in complaining about businesses having a lack of credit on the one hand and criticising the Government for bailing out the banks on the other hand. Without support for the banking system those businesses have no prospect of accessing new streams of credit.
From the outset and the publication of the draft Bill the Minister for Finance has stated he is open to constructive amendments relating to the Bill put forward by the House on Committee Stage, which is welcome.
The fundamental issue to which we must face up is the overhang of property related loans. The banks are not confronting this problem in a meaningful and serious way. They have allowed the overhang of those loans to remain on their books and, as a result, are unable to lend to the real economy or to give businesses access to credit which they so earnestly crave. NAMA is not a bailout for bankers and builders. If people wish to portray it as a bailout, then it is a bailout of our banking system which is necessary and essential and I would defend that in any debate because of the importance of the issue.
There is risk inherent in NAMA. There is no risk-free solution to resolving the difficulties in our banking system. Much has been said about the risk of proceeding with NAMA but very little has been said about the risk of doing absolutely nothing, the risk of allowing the banking system to continue to be paralysed by the overhang of these property related loans. It is in the collective interest of all sides of the House to have a banking system that functions normally. There has been severe criticism of the banks for not lending to businesses in recent times. However, the banks simply do not have the money to lend. This is borne out by the facts. Everyone will have seen the vast amount of money banks have spent on advertising deposit accounts and savings products in recent months in an effort to rebuild their balance sheets, because they do not have access to credit and are unable to pass on credit to the real economy and to the businesses which so badly need it.
NAMA will represent an injection of funding into the banking system. It is structured in such a way that the banks will be able to bring the bonds to the ECB and cash them in at 0.5% above the ECB base rate, representing a real stimulus to the economy. Each loan purchased by NAMA from the banks will be valued individually and it is important to recognise this. I welcome the fact that the levy, which is the final safeguard in the event of NAMA making a loss over the course of its lifetime, will be imposed on the financial institutions to recoup any loss to the taxpayer. Such a levy will now be built into the legislation, an important safeguard.
Much of the public debate has been characterised by a choice between either NAMA or nationalisation. In reality they are not mutually exclusive because the nationalisation of the banks would not in itself solve anything. An asset management agency vehicle would still have to be established to clean the banking system of all the toxic loans. The ECB, on which we rely so heavily, is not in favour of full nationalisation of the banking system. In such an event the existing shareholders would have to be compensated by taxpayers too. Many experts have predicted that full nationalisation would result in Ireland's sovereign credit rating being downgraded and would increase the cost of servicing the national debt. Another proposal from the other side of the House related to defaulting on bondholders. That is simply not an option either because many of the bondholders are pension funds or investment managers and credit unions invest in bonds and so forth. Defaulting on these is not an option either nor is it painless or risk-free.
To varying degrees the IMF, the ECB and the European Commission have all supported the NAMA type approach the Government intends to pursue. I am not suggesting the Bill cannot be improved because I believe it will be improved in the coming weeks and the Minister is open to amendments which will improve the Bill. I also believe if Second Stage is passed tomorrow, it is the responsibility of every Member to seek to refine the Bill to improve it and to safeguard the taxpayer in every way possible. There are risk sharing mechanisms built into the scheme. Much of the public debate has centred on the issue of the premium being paid for the loans. This is associated with the long-term economic value, the €7 billion premium or uplift. The State has warrants equating to 25% of AIB and Bank of Ireland. We fully own Anglo Irish Bank and the building societies are mutual societies and it is certain we will end up investing further equity into the two principal institutions as well.
In effect, €4 billion of the €7 billion premium is covered through State ownership and control. The State is on both sides of the transaction to the extent of €4 billion from the €7 billion. Subordinated bonds are being issued to the tune of €2.7 billion, bringing the total to €6.7 billion of the total of €7 billion. We have the final safeguard related to the levy which will be in the final statute once approved by the House. The Minister has negotiated a very good deal with the ECB, related to the facility for cashing in these bonds at the base rate, currently at 1%, plus 0.5%. If the process is managed correctly on a cash flow basis the income received from the performing loans will more than pay the interest on the bonds. Over time, the proceeds from the loan repayments and the sale of the underlying assets will fund the repayments of the bonds in full.
Another key issue raised is whether the funding in the amount of €54 billion will be lent on by the banks. There will be a real commercial incentive for the banks to put that money to work. If they merely hold on to the bonds they will receive 1.5% interest from NAMA but if they cash in the bonds they can put the money to work, lend it out at interest rates of a multiple of the 1.5% they would receive in the event of not putting the money to work. It would be helpful in the interests of public confidence to put a clause into the legislation to ensure that money is lent on.
My final point is related to the area of Oireachtas oversight, which we all agree is fundamentally important. There are several relevant provisions in the Bill including section 52, relating to the annual accounts; section 53, relating to the biannual report; section 55, relating to the audit of the accounts by the Comptroller and Auditor General; section 56, which states the chief executive and the chairman will be accountable to the Committee of Public Accounts in respect of the audited accounts; and sections 218 and 219, which relate to the review of NAMA's progress. It is essential that the chairperson and chief executive officer of NAMA should be brought before the appropriate Oireachtas committee at regular intervals, not just to discuss the accounts, which will only tell us so much, but also to discuss the progress NAMA is making towards achieving the objectives set out in this legislation. If that requires an amendment, and I believe it may, then it should be done.
Clearly, lessons must be learned following all of this. There are lessons for bankers, regulators, politicians, developers and consumers. As a member of the Select Committee on Finance and the Public Service, I look forward to discussing the Bill on Committee Stage.
While I have great respect for Deputy Michael McGrath's views, as a layman I still find it difficult to understand how the State can justify the investment of €4 billion of taxpayers' money in Anglo Irish Bank. To date, no one has been able to give me an economic rationale for allowing this bank to stay afloat. I have not heard it from a market perspective, nor have I heard a cogent political perspective to convince me of the need to have invested so much taxpayers' money in that institution. There will have to be a further analysis of that decision. I can only surmise that some of the stakeholders in that bank were so strategic in terms of the Irish economy and the employment they provide that if there was a risk their investments were going to be compromised in any way, it could have had untold consequences for jobs in a number of other sectors. That has not been stated by anyone on the Government benches, however. I would prefer people to come clean about the motives for such an investment because taxpayers deserve no less.
As regards the Deputy's comments on the levy, those who will ultimately pay the price if such a levy is imposed on the banks will be the customers, not the institutions themselves and certainly not the shareholders. If a levy is imposed, the taxpayers will pay it, thus imposing another cost on the customer base.
As regards the NAMA legislation, four months ago, a representative from the Irish Banking Federation told an Oireachtas committee that approximately 14,000 people in this country have mortgages which are in arrears. Juxtapose this with a blanket guarantee, which Labour opposed, and one has a situation where the Government now stands as guarantor for the funds of speculative bondholders in some instances, as well as shareholders in a banking system in a state of paralysis and to which it is proposed to transfer resources in the name of all taxpayers, present and future.
One of the fundamental questions for my constituents in Cork East is whether legislation of this magnitude will protect home owners who are at risk of repossession. The answer to that question, quite plainly, is "No". We are losing jobs every day and liquidity plays a part in that analysis. More seriously, as my colleague Deputy Michael D. Higgins pointed out earlier, home owners are terrified of the day when interest rates increase as the European Central Bank responds to a slow European recovery. A wave of repossessions may ensue. That figure of 14,000 represents thousands of families who live with the fear of repossession hanging over their heads as they attempt to make ends meet. These are families living in unfinished estates or shoebox apartments. Young families are sending their children to prefab classrooms in schools too small to cope with the influx of new housing. They are families who made a choice. Much like the bankers who will be bailed out by this legislation, these families decided to take a risk in purchasing houses at historically high prices. Taking out a mortgage constitutes making an investment in property, with all the potential hazards that come with it. In the main, however, their behaviour could not be characterised as speculative. Their behaviour was predicated on the basic human need to set up home and put down roots. The difference, however, is that these families will not be afforded any bailout. The best that families in arrears will get is a moratorium, a stay of execution that will delay the inevitable proceedings that could see a percentage of them rendered homeless.
There is also another difference. While bankers and builders looked to a multitude of so-called financial experts hell bent on hitting financial targets, the people took their Government's assurances at face value when stepping onto the property ladder. The Fianna Fáil Party laughed off warnings of a recession with jokes about naysayers committing suicide and insisted that we were in for a soft landing when cautioned about the overheated economy. Weeks prior to the 2007 general election, the then Taoiseach, Deputy Bertie Ahern, criticised an RTE programme entitled "Future Shock: Property Crash". At the time the programme was frightening in its bleak appraisal of the property market, but it is now seen as remarkable in its prescience. At the time, Deputy Bertie Ahern described the programme as irresponsible and inaccurate.
Why should the public trust those who got us into this mess to get us out of it? The Fianna Fáil Party has not got the confidence of the people of this country on NAMA or any other issue. Once again, the people are being asked to trust Fianna Fáil, the party which gave assurances of soft landings and ignored the advice of those concerned with the property bubble. Once again, its members chose to ignore the warnings, this time disregarding the sound economic consensus that NAMA is a bad deal for the taxpayer. Any faith the public once had in Fianna Fáil is gone. We can see this legislation for what it is - an attempt by Fianna Fáil to maintain the status quo. It will continue to prop up those who benefited greatly from the economic policies of Deputies Bertie Ahern, Charlie McCreevy and Brian Cowen. Those policies enlarged the gulf between the wealthy elite and ordinary citizens. The people of Ireland do not want NAMA and they do not believe that this Government can repair the damage done to Ireland's economy, reputation and confidence.
The Labour Party policy on NAMA is predicated on a belief that the payment to a bank of a long-term economic value for loans amounts to a significant gift by taxpayers. This is a €7 billion gift to the banks. As CORI and other organisations have pointed out, this is likely to undermine the State's finances and public services for years to come while failing to secure credit for businesses.
The Government's approach to resolving the current fiscal crisis is inherently flawed. There is no talk of stimulus and the assets are over-valued. Banks do not have to change their behaviour. We believe the current market value is the price that must be paid for these assets. The Government should ensure nothing above the true current market value is paid for the assets in order that the risk to the citizen is lessened. If the €47 billion valuation is accurate, the decision to pay the banks €54 billion for the assets amounts to a gift of €7 billion to them. Where is the economic justification for such an action?
The Bill is one of the most significant the Dáil will ever debate. The risks to the Exchequer are enormous and irreversible. Overpayment by NAMA for the loans will impose a major financial burden on the State, yet it is clear this is the inevitable consequence of the Government's approach. Throughout the banking crisis, the Labour Party's analysis has been consistent in its determination to protect the interests of the taxpayer, while advancing proposals to restore a functioning banking system, supplying much needed credit in the economy at the lowest cost and risk to the taxpayer. Our analysis is there will always be a risk to the taxpayer but we can mitigate it more expeditiously than Fianna Fáil. Our approach, based on temporary nationalisation of the two largest banks, would minimise the risk to the taxpayer and provide a potential upside when the banks were reintegrated into the private sector.
We have published our position in this regard and been consistent in our opposition to the underlying culture of greed and recklessness that gave rise to the banking crisis in the first place. We have always called for tougher regulation at EU level and countered the role of our own Commissioner, Mr. Charlie McCreevy, in completely rolling back the regulatory framework, a process started by his predecessor, Commissioner Bolkestein. In addition, we have always said the financial services sector would have to be regulated because the invisible hand of capitalism would render the type of crisis we are now experiencing. During the bubble years we pointed to the dangers and unfairness of soaring house prices, brought forward legislation to control the price of building land and challenged the tax breaks fuelling property prices. Instead of acting to control prices, Fianna Fáil stoked the property boom at the same time as the party flaunted its relationships with property developers.
There are serious weaknesses in the proposed governance structures of NAMA. As well as the risks and costs of bad loans being borne by the taxpayer, no provision in the Bill gives assurance that a tough, commercial approach will be taken to developers. The legislation has inherent flaws. The Bill states the agency is to obtain the best achievable financial return for the State having regard to a number of factors but it vests extraordinary powers and discretion in the Minister for Finance. I am not convinced these powers will achieve the best financial return for the State.
The legislation states, "except where otherwise provided by this Act, NAMA is independent in its performance of its functions". In an overall assessment of the Bill's provisions, the agency, in all major respects, is not independent but it must act at the direction of the Minister. Its function is "to acquire certain assets from certain persons to be designated" by the Minister and "to perform such other functions related to the management or realisation of bank assets that it has acquired as are directed by the Minister". The power of designation of "eligible bank assets" to be purchased by NAMA is vested in the Minister. He or she must consult NAMA, the Governor of the Central Bank and the Financial Regulator but the power to designate resides with him or her exclusively.
This is a flawed process in the context of democracy. I hope the Labour Party will have an opportunity to address this issue on Committee Stage because there must be proper financial and regulatory oversight of the legislation to ensure it will not be abused if the Minister is seeking to achieve the aim of gaining the maximum value for the amount invested by the State. The legislation requires NAMA, in the performance of its functions, to have regard to any guidelines issued by the Minister and sets out his or her powers of direction, which are extensive. The agency is required to comply with any ministerial direction. The legislation gives the Minister too much power. These powers need to be devolved to the financial regulatory regime. I hope this issue will also be addressed on Committee Stage.
The NTMA must provide NAMA with such business and support services and systems as the NAMA board determines acting on the recommendation of the chief executive officer of NAMA and following consultation with the chief executive officer of the NTMA. It is also obliged to supply staff and provide NAMA with treasury services and advice. Other than these functions, NAMA appears to be a cuckoo in the NTMA nest. While the formula of having consultation with the Governor of the Central Bank is included in the Bill, clearly the Minister is not bound by and does not need to have particular regard to his or her views.
With regard to the role of the Oireachtas, the Minister is required to furnish an annual statement to the Houses of the Oireachtas but the Bill entitles him or her to omit "any matter that would disclose confidential information". "Confidential information" is widely defined and could be construed to justify withholding any information the Minister sees fit. The chairperson and chief executive officer of NAMA must appear before the Committee of Public Accounts and deal with general matters that are specified, for example, the economy and the efficiency of NAMA systems and procedures. However, the Bill includes a section that gags and prevents them from expressing an opinion on the merits of the policy of the Government or a Minister or on the merits of the objectives of such a policy.
The legislation appears to leave it in the hands of the Minister to evaluate after five years whether NAMA "had made progress towards achieving its overall objectives" and whether a continuation of the agency is necessary. That should be a decision for the Oireachtas, rather than the Minister.
The Minister also has critical overriding functions in the determination of acquisition values. The Bill empowers the Minister to make regulations to require NAMA to take into account the report of an expert concerning factors or matters relevant to the determination of the value of any property in question. Under the legislation, he or she will appoint the expert reviewer and the valuation panel. The panel will review the total portfolio acquisition value and then proceed to communicate its position to the Minister, not NAMA. However, the Minister can reject the valuation of a portfolio by the panel. In other words, if he or she does not secure the valuation he or she wants from the panel, it will have to reconsider the valuation. That is a Labour Party analysis and is something I hope the Minister will respond to in the debate because it is pertinent.
There is much in the Bill that will require further discussion. The valuation process is inherently flawed. The taxpayer will have paid a surplus of their own money to the banks for this process. The legacy of this legislation will be negative. The Labour Party had a constructive alternative analysis through the construction of an asset recovery which we felt would be a much more expeditious way of dealing with the crisis in the banking sector. We felt that temporary nationalisation, with a view to selling stock back into the market once there was an upturn in the economy, was the way to go. We hope to deal with all of the issues we have outlined on Committee Stage.
Before I contribute to the debate on NAMA I take the opportunity as a north east TD to record my sincere congratulations to Deputy Seamus Kirk on his ascension to the role of Ceann Comhairle. It is a superb achievement for him and for the people of County Louth whom he represents where he topped the poll in 2007, and is a fitting highlight to a 27 year Dáil career.
I express my sincere appreciation and thanks to the former Ceann Comhairle, Deputy John O'Donoghue, for his kindness and assistance to me as a new Deputy in this House since 2007.
In all of Deputy Kirk's 27 year Dáil career, and in my two and a half years as a Member, I believe no Bill is as important as the one we are debating. NAMA will buy loans from the participating banks at a discount. That is hugely important. It will take riskier loan classes away from the balance sheets of the banks concerned and make the banks safer and more secure for depositors and investors. We need that to happen to get liquidity back into the system. Like other Deputies in this House, I have had numerous business people in Cavan and Monaghan contact me to outline the way they have struggled to get credit, and NAMA is the vital part in the equation. Banks are hampered in their efforts to lend money to viable businesses, sole traders, potential home owners etc. because of those bad loans. I agree with Deputy Michael McGrath who said earlier that they just do not have the money to lend.
There is and has been a problem with regulation. When money was flush, there were banks that lent money as if it was confetti at a wedding and now we are in this difficult position. It is unfortunate that some bank employees have been treated in an inappropriate manner in the delivery of their services and duties. There are many fine people of the highest integrity working in our banks, and we should not forget that.
There have been many complaints about the long-term economic valuation. It must be remembered that this valuation methodology, along with all other State aid aspects of the NAMA initiative, is subject to the approval of the European Union Commission. Banks need access to cash or near cash assets in place of the property loan assets they had previously, which were not moving in the property market. That is the case not only in my constituency but nationwide. This will make for more stable and secure financial institutions which will be better able to lend to and support the domestic economy. That is the crux of the entire debate on NAMA and the reason I support it.
Every economy needs a proper functioning banking system, and that is what we are attempting to achieve. Who wants to go to an ATM and insert their card only to read that there are insufficient funds on the part of the bank, not the card holder? For us, standing still is not an option. We must take the brave decisions. NAMA will manage the loans either directly or indirectly so as to obtain the best achievable return from them. In the meantime, it will collect interest due and pursue debts to ensure its own income stream and recoup the Government investment over time.
NAMA, in effect, puts itself in the place of the bank that originated the loan and will have all the same rights to pursue debts where necessary. Borrowers who continue to meet their contractual obligations have no reason to worry - their rights are fully protected. We do not want to create another administrative monster and therefore NAMA will be a streamlined, efficient organisational structure. It will have complete control of the assets and will make all the major decisions in regard to them.
The Minister noted that it is clear that an intervention of this scale in the banking market is bound to have considerable implications, both for the institutions individually and for the broader structure of the banking system. The Minister said these implications are being considered and may, as indicated earlier, include implications for capital requirements. These matters have formed part of the broader context in which the NAMA legislation has been discussed.
These weeks of debate on NAMA have given market participants, public representatives and the public themselves an opportunity to digest the detailed and comprehensive nature and content of the Bill and they allow me, as a Deputy from Cavan-Monaghan, to speak on this most important Bill.
For the sake of clarity I wish to point out the principal features of the Bill. NAMA will buy the appropriate assets of the participating institutions. The price will not be the book value of the loans but will include an appropriate write down which the participating institutions will have to reflect in their books. NAMA will purchase the assets through the issue to the banks of Government securities and-or guaranteed securities issued by NAMA. The replacing of property related loans with Government bonds will strengthen the balance sheets of the banks which will increase their capacity to access liquidity in the financial markets and, if necessary, through the Eurosystem liquidity operations.
The principles of the valuation methodology are set out in the legislation, and the Minister will be making detailed regulations based on these principles. The methodology will recognise that the current market for property backed loans and the underlying assets are very illiquid and will not require the banks to accept "fire-sale" values, nor will it be guided in its pricing by the property prices and expectations regarding property prices that underpinned the original lending decision. It will aim to set a reasonable price having regard to a longer term perspective on the property market. The valuation methodology and the scheme as a whole will require EU state aid approval.
NAMA will set the price it is prepared to pay for assets, not the banks, the builders or the vested interests. That will be done for the good of the Irish taxpayer. In acquiring loans, NAMA will have all necessary powers to carry out full due diligence and acquire all necessary information. Participating institutions are obliged to act in good faith and comply with appropriate directions from NAMA.
NAMA will have all the powers necessary to purchase, hold and dispose of assets and, if necessary, complete developments with a view to achieving an optimum return to the State.
NAMA will be accountable to the Oireachtas in the usual manner. The agency will report to the Minister, reports will be laid before the Houses of the Oireachtas and NAMA accounts will be subject to audit by the Comptroller and Auditor General.
Various legislative exemptions and variances have been provided to enable NAMA complete its work as efficiently as possible. To deal with the danger that persons might seek to impede NAMA's operation in particular ways, NAMA has been provided with limited powers to obtain property or interest compulsorily. Where litigation arises in respect of NAMA's operations, provisions have been made to ensure this does not unduly obstruct NAMA's efficient operations and such litigation proceeds without delay. NAMA will be provided with powers necessary to enforce the security on loans, including the appointment of statutory receivers, and to be vested with ownership of the underlying asset where appropriate.
Institutions may apply to the Minister to be designated as participating institutions. The draft text includes objective and non-discriminatory criteria which must be taken account of for designation and these include systemic importance to the State, other State supports available to the institution, maintenance of financial stability and facilitating the flow of credit to the economy. In volunteering for participation, an institution will be required to confirm that it will accept the designation of eligible assets by NAMA and will accept the NAMA valuation of those assets.
Eligible assets for transfer to NAMA will include the land and development books and associated loans. Associated loans will be those loans which are not in the land and development category but which are held by individuals or companies that also have land and development exposures or where the borrower may be a systemic risk to the financial system. Associated loans will take account of cross-collateralisation and other associated loan exposures of borrowers.
I want to mention the anger felt by members of the public for the bankers who have erred. This anger is justified and it is important we allow the investigations to continue. There will be a day of reckoning when a banker or bankers will face the full rigours of the law. At that stage natural justice will be seen to be done as certain individuals have damaged our reputation as a country and for that they must pay the price.
This Bill is necessary. We would prefer not to be where we are but this Government would be abdicating its duties if it did not seek to take the necessary tough decisions for the good of this country. We are not bailing out bankers or developers. We are bailing out nothing except this economy. We must get it moving again and NAMA is the best and only show in town.
I take this opportunity to congratulate Deputy Seamus Kirk on his new job, which he fully deserves. I also thank Deputy John O'Donoghue for the help and courtesy he has shown me at all times.
The National Asset Management Agency will buy assets from banks, thereby taking the riskier loans off bank balance sheets and making banks safer and more secure for depositors and investors. This is the best approach to ensure stability in our financial system and free banks to lend to businesses and households. NAMA will buy loans at a discount of about 30%. It will do so on the basis of individual loan valuations carried out by experts and subject to European Commission approval. The payment for the loans will be in the form of Government bonds. NAMA will manage these loans either directly or indirectly to obtain the best achievable return from them. In the meantime, it will collect interest due and pursue debts owed by developers. The Minister for Finance, Deputy Brian Lenihan, has pledged that the full rigours of the law will be applied to do so.
We all know property and land prices are depressed. Owners of these assets will not be able to sell land or property until prices increase in an economic recovery. However, the economy will not recover unless the banks are able to lend to businesses and households once again. Banks cannot access funds to lend money given the uncertainty of the value of loans on balance sheets. This prevents prospective buyers entering the market, which ensures asset prices remain depressed. By establishing NAMA the Government is trying to unlock this catch-22.
We have no other option. We must address the health and stability of our banking system to ensure the credit required by the economy is provided and people's savings are protected. Banks need to be able to access cash so that they can lend this cash to viable businesses and households. At the moment, concerns about the impact of risky loans on the banking system are creating funding difficulties for the banks and restricting the flow of credit.
The replacing of property related loans with Government bonds will remove uncertainty about the soundness of banks' balance sheets. This will increase their capacity to access funds in the financial markets and, if necessary, from the ECB. This response will ensure the banking system's safety, stability and capability to lend, all of which are crucial for economic recovery.
NAMA is not a bailout for banks or developers. It is about getting the banks to a position where they can start lending to families and businesses once more. Banks will suffer substantial losses on the sale of assets to NAMA. It is not a rescue vehicle for developers or other borrowers as NAMA will expect to be repaid in exactly the same way as a bank would. NAMA is not about restoring the property bubble prices of 2007 and it is estimated that NAMA will have to achieve an uplift of less than 10% over the current market values on its assets over ten years to break even. Furthermore, there will be a fund available to allow some half-finished construction works to be completed. This is good news for those in new estates where work is unfinished, thereby making it even more difficult to sell remaining houses and apartments.
Naturally, there has been concern about what safeguards will be put in place to protect the taxpayer. Under the Bill there will be no easy terms available to borrowers from NAMA. All borrowers will be pursued by NAMA for their debts and it will be a crime for anyone to lobby NAMA in regard to any of its decisions. Only a borrower and his or her agents will be authorised to deal with NAMA.
The legislation has been changed to require more frequent reporting by the agency and the Minister for Finance to the Oireachtas. Any involvement by borrowers in the development or completion of property acquired by NAMA will be subject to strict limits and controls. Under the Bill there will be no easy terms available to borrowers from NAMA, and all of these will be pursued for their debts.
NAMA is not expected to make a loss over the long term but if it does, financial institutions will be levied. The Government is not bailing out the banks but is bailing out the economy. In the absence of a functioning banking sector, everything people have worked so hard for would be placed at risk. It is for this reason I will be voting for the speedy implementation of this legislation.
Bankers - I do not include staff at branch level in this - have let this country down. There is no excuse for greed. We now have a duty, for the good of the economy, to restore confidence in the banking system. It is estimated that the value of the bank loans to be taken over by NAMA is approximately €77 billion. NAMA is supposed to pay €54 billion for these and, as a result, the banks will suffer a loss of €23 billion. The banks are rightly sharing the losses. After all, it was they who engaged in approving crazy loans in the first instance.
The purpose of this legislation is to ensure the banks lend again. The European Central Bank, not taxpayers, will put up the money in respect of this matter. If NAMA covers its costs over ten years, taxpayers will pay nothing. If it makes a loss, a bank levy will be introduced to cover this.
From 2001 to 2007, loans to farmers increased from €3.5 billion to €5 billion. During the same period, property developments increased from approximately €5 billion to in the region of €80 billion. That is the key point in respect of this matter. In addition, there was no regulation or oversight during the period to which I refer. The proposal to rectify the position involves the establishment of a State-run monopoly property management agency, NAMA, which will give €54 million to the banks to shore up their balance sheets. That is a huge amount of money to pay to five banks and building societies in respect of non-paying loans. The bill in respect of NAMA's running costs and interest repayments remains unknown.
There are four fundamental issues which should be of concern to every citizen. First, the best experts available have not been engaged to carry out an in-depth analysis of NAMA's impact on the financial and social sectors. The Government has not considered any alternative, including the Fine Gael proposal in respect of a national recovery bank. Until now, the only discussion regarding proposals relating to NAMA took place in the media and at the last week's negotiations on the programme to rescue the Government.
The second issue relates to the €7 billion difference between the €54 billion the Government will pay the banks and the €47 billion - and dropping - estimated value of the properties involved. This is a direct and indefensible premium payment to the banks at a time when basic services and special needs supports have been cut. In addition, there is no protection for taxpayers regarding further hidden losses. If a fire sale were to take place in respect of the Zoe Group's €3 billion in bad debts, what then would be the position of the €47 billion valuation on the properties to which I refer? We already know that the two main banks will require further capitalisation to the tune of €9 billion.
The third issue is that the NAMA loan book will be comprised of two thirds land and property and one third investment property. The Government will, through NAMA, maximise the yields of all properties by debt collection, selling and buying land, developing property and managing rental properties. This poses a serious question whether there will be a conflict of interest involving the Department of Finance and county councils and other agencies which source and manage land for community. Will NAMA have a vested interest in stoking a new and equally unsustainable upward valuation of property? In essence, the long-term prospects for NAMA depend on an uplift in property prices. For this to happen in the way the Government envisages, namely, 1% per year or 10% over the ten years in order that NAMA will break even, which has been rubbished by most experts, it will be necessary to fuel inflation and directly compromise our ability to restore our competitiveness.
The Government has stated that NAMA will not cost the taxpayer billions. However, I am of the view that its activities will lead to an increase in property prices. Fine Gael proposes the establishment of a national recovery bank. Such an institution would have made all the money allocated to it available to businesses to restart the economy. Under this model property price increases would have followed the economy and reflected people's ability to buy, not the other way around. The NAMA model is dependent on property prices being dragged back up and people following them. To put matters simply, this will place the Government in a compromising position.
The fourth issue of concern is that the main job of a bank is to deposit people's savings and lend money to individuals and companies to create jobs. As a number of previous speakers indicated and regardless of what the Minister for Finance stated, NAMA bonds will be used to shore up the balance sheets of the banks. The objective is not primarily to encourage them to lend money but rather to place them in a healthier position. Regardless of what is stated in respect of green shoots of recovery, there is a view abroad that we could be in a W-shaped recession. In other words, the global economy dropped and is rising but will fall again before eventually rising.
The Fine Gael option of a national recovery bank would provide an immediate, uncomplicated transfusion of funds to those who need it, namely, businesses and individuals. More importantly, it would avoid the establishment of a State-run monopoly in the property market. Such a monopoly has complex implications for society which have not even been addressed.
The Government's attitude is one of casual tyranny. It seems tyrannical and casual that we will stump up 40% of our gross domestic product to pay the debts of the bankers and developers. Sweden only paid 7% of its GDP on clearing bank debts. A huge amount of the money to which I refer will be invested in two institutions - Anglo Irish Bank and Irish Nationwide - which will never lend again. It is incomprehensible that we would tie up so much of our national equity in two institutions that will play no further part in stimulating the economy.
What is happening is also tyrannical in that the Department of Finance will become the biggest landowner in the country, if not the world. At a time when rents should be falling to allow a return to competitiveness, NAMA will be geared towards extracting maximum values. There is no upper limit on the amount of money taxpayers will be asked to provide to NAMA in respect of its loan book in the event that it experiences an increase in losses. There is no guarantee that the total amount will be €54 billion. As we understand it, this matter will remain at the discretion of the Minister who, with the exception of the submission of an annual report to the Committee of Public Accounts, will exercise the only oversight and scrutiny in respect of it.
The tyrannical aspect of what is proposed is also evidenced by the fact that there will be no Government assistance for the estimated 35,000 people who may default on their loans or mortgages. Rather, the Department of Finance will hound these individuals for every last cent. Why has provision not been made to the effect that any bank which recklessly provided 100% loans and sub-prime loans and provided current accounts therewith should be obliged to write off at least 15% of such loans? The banks were reckless and stimulated the property bubble in so far as they actively touted for business.
Unfortunately, banking became a marketing tool and ceased to be based on sound financial fundamentals. It became a matter of how large a bonus those engaged in offering loans on behalf of the banks could obtain at the end of the year. All responsible banking practices and proper oversight mechanisms seemed to disappear. If we questioned what was happening, we were accused of being killjoys and of being jealous because we were not involved in stimulating the boom.
The casual aspect of the Government's behaviour is that the Minister for Finance believes it is fine to toss a bonus of €7 billion to those who have behaved recklessly. In that context, when one considers the cuts that have been made to vital services, it is no wonder that members of the public are angry. The Minister appears to state casually that assurances have been given to the effect that credit will become available. Privately, people in the banking sector will state banks have again become cautious and conservative and will not lend money to businesses other than those which are viable. Businesses are being told they need not bother applying and then one is told 80% of those businesses which do apply are having their applications approved. New business sometimes constitutes restructuring business and it fits into a statistic.
I will turn to some of the implications of last week's discussions on the new programme for Government. It appears as though amendments will be introduced regarding a levy and a capital gains tax rate of 80% for land acquired under compulsory purchase orders for the building of roads and infrastructure for the greater good. Such arrangements first were negotiated to compensate people who were losing strategic land. Valuations are based on the impact on the existing and future landholding and the payments were deemed to be necessary to enable people to re-establish the viability of their landholding units. It seems the application of a rate of capital gains tax of 80% as a penalty on those who were unable to stand in the way of a decision would be penal. I cannot understand how any rural Deputy could stand over such an agreement. The same is true of the sale of sites whereby, perhaps reluctantly, people may be obliged to sell. One hears of farmers, in particular, who are obliged to sell some of the silverware or their breeding stock simply to pay their bills. While it is not a course of action that most people wish to take, if they could sort out their financial difficulties by selling a site, it seems criminal that such persons would then be forced to pay a rate of 80% on the sale. I do not have a problem with levying a windfall tax in respect of vast tracts of zoned land that previously were farmland. While a reasonable sum certainly should be applied, two wrongs do not make a right and going from a rate of 20% to 80% seems to be draconian.
A recent article in The Irish Times discussed seven reasons that Ireland would be left behind, one of which was uncertainty about taxes. It read:
NAMA and the process of fiscal adjustment have caused major uncertainties, especially in the minds of taxpayers. No one knows for sure how much additional taxes will be imposed as a result of bailing out banks [These are not my words]. The tax commission report also creates uncertainty.
No one seems to understand joined-up thinking is required in this regard. No member of the Government appears to think of this uncertainty. When first announced, NAMA evinced a certain amount of decisiveness. Similarly, the publication of the reports from an bord snip and the Commission on Taxation betokened a certain amount of decisiveness, albeit in hope rather than expectation. However, there has been no joined-up thinking in this regard and people have been obliged to endure a renegotiation of a programme for Government in which one third of 800 people decided the fate of the Government. Someone called it a programme for survival, which probably describes it better.
Nevertheless, the country could take other measures. As I noted, the goal is to try to swing back down to a competitive position. In this context, we can try to have addressed some of the areas somewhat outside our control. For example, we are powerless with regard to what happens with the valuation of the United States dollar or sterling. The value of sterling is having a serious impact on our exporters. We must consider keeping those affected active, alive and afloat. One development that could take place pertains to China which has so much money invested in dollars. Were the Chinese authorities able to invest in euro without risking instability, it certainly could help to shore up the euro's position. Ireland should ask the International Monetary Fund to revisit the substitution account and create a new international currency in which countries such as China could invest without causing exchange rate volatility.
Ireland exports 43% of its agricultural produce to the United Kingdom. Yesterday I met farmers as they drove their tractors through Wicklow town. For the first time ever I encountered a mood of despair rather than of anger. They are unable to be angry anymore. This island has a food producing economy and agrifood sector that employs, depending on what figures one takes, between 230,000 and 300,000 people, yet we appear to be doing nothing to address this issue. My colleague, Deputy Creed, and I produced a draft fair trade Bill to deal with the retail and grocery sectors. The day after we published it the Tánaiste and Minister for Enterprise, Trade and Employment announced a consultation process on the development of a code of practice. While some of the soundings taken from the big three retailers have been that this will add to costs, I believe that to be nonsense. There is nothing to fear in our Bill for anyone who is not partaking in the practices we propose to outlaw. If the Bill allows for people to prove this, it will not constitute an additional cost and an audit would cost an organisation more.
In this context, it appears no effort is being made to try to restart the economy. The former Taoiseach, Dr. Garret FitzGerald, noted that the €16 billion loss in income constituted a part of the problem that no one in government appeared to be trying to address. The State has lost income in the form of lost tax revenue from a bloated property sector. While the property sector was shoring up the coffers of the State, sight was lost of the fact that all other areas were disappearing in terms of competitiveness. Unless these issues are addressed and action is taken to stimulate the economy, we will not succeed, regardless of what is done to shore up the banks. Even the 1% rate the Government has identified as being necessary will not be achieved. Certainly, it will not get credit rolling because we do not know where we are going.
Fundamentally, to allow the economy to recover we must concentrate on those sectors in which we are strongest. If we regain competitiveness, we have a tourism sector that can compete with most places in the world. Moreover, we are in the euro zone, speak English and have a natural resource in respect of agriculture, food and energy production. I am a member of the Joint Committee on Climate Change and Energy Security which presented a draft Bill to the Government on foreshore licensing. However, it has been buried between the Departments of the Environment, Heritage and Local Government, Agriculture, Fisheries and Food and Communications, Energy and Natural Resources and there is no sign of it emerging, for whatever reason. I am led to believe there is a Cabinet sub-committee on climate change which has acknowledged receipt of the Bill. However, it probably has been in its possession for six months by now.
To revert to NAMA, it is hard to comprehend how such an important act or direction for the State to take can be treated with such a casual attitude. It is a fundamental mistake to overvalue and overestimate. The spin the Government has placed on this matter evinces no sense of erring on the side of caution. I have listened to the contributions of various Members on the Government side and this issue is being spun in a positive fashion. While Members on the Opposition side do not wish to spin negatively, if one considers the Bill pragmatically, the risks are huge. This is a huge gamble and no effort is being made to take on board proposals from any other side of the House. Mr. Dermot Desmond of NCB alluded to the need for a national recovery bank, to which the Fine Gael proposal comes closest. The incentive varies slightly under our suggestion. The institutions are charged 4% per year to guarantee the bad loans. To pay that and have access to new credit, they have to lend money to service that loan and pay their ongoing bills. Fine Gael is not alone in saying that a recovery bank is the best way to address this.
I disagree with the notion of nationalisation, which is a last resort. Everyone, including small shareholders, must take risks but the risk seems to be on the public. For the small shareholders there is some hope that some day they or their descendants will get the value back on their investment.
I wish Deputy Seamus Kirk all the best in his new position as Ceann Comhairle. I thank Deputy John O'Donoghue for his courtesy and kindness to me while I was in the Chamber, speaking or kicking up from time to time.
The National Asset Management Agency Bill has been widely debated inside and outside the House over recent weeks by the public, economists and those who have expertise on finance and banking. Everyone has a view on how NAMA will work, how it will help the banking system, how it will get us out of this situation and how it will help the future of this country. The Minister for Finance, Deputy Lenihan, stated: "NAMA will facilitate the speedy removal of higher risk property related assets which are clogging up the banks' balance sheets and greatly hampering their ability to lend to creditworthy individuals and households and thereby support economic activity." The Government is determined to ensure the Irish banking system can provide the credit and financial services the economy needs for sustainable economic recovery. This should be fully and properly regulated and supervised in the future. For this reason the Government has taken decisive steps over the past year to stabilise and reform our financial system. This is a process that must continue. The purpose of the activity is not to benefit bankers or major borrowers but to protect the security of bank deposits, reduce the risk to our economy and ensure we have a future based on sustainable economic development supplied by, but not led by, an efficient financial system. The Government will continue to implement the programme for Government in a way that protects the taxpayer. It is important the taxpayer is protected.
Having stabilised our banking system, the Government will ensure a root and branch reform so that we never return to the reckless lending practices that led to the banking crisis. Participating banks will be required to submit detailed restructuring and lending plans, dealing with the key elements of their business strategy. This will include lending targets to different business sectors and the future balance between the Irish and international operations. The Government and the Financial Regulator will develop a new code of conduct for the treatment of non-performing loans of small and medium-sized businesses. The principles of the combined code of corporate governance will be set on a legislative footing so that all banks, public companies and State-sponsored bodies deal with key areas of governance of institutions, including board composition and independence, segregation of the chief executive officer and chair, clear definition of executive and non-executive responsibilities, audit committee composition, segregation of committee chairs, risk management, selection of non-executive directors and sanctions for non-compliance.
The Government is in the process of drafting legislation for the reform of the regulatory system for financial services. People are very concerned that the regulatory system in place over recent years did not work. It is one of the causes that landed us in the mess we are in at the present time. In preparation for this the Government will shortly restructure the boards of the Central Bank and Financial Regulator and select members having regard to the renewed mandate and focus on the central banking and regulatory structures. Within the new structures for regulation of the financial sector, a specific executive will be assigned responsibility for all Central Bank issues regarding ongoing oversight of State-owned and State-supported institutions. The Government's approach to asset valuation within the NAMA initiative is a carefully balanced and reasonable approach having regard to the need to stabilise the financial system and to ensure the economy has access to credit and financial services. Alternative approaches risk leaving the banking system impaired and without access to funds or capital for future development.
Many Members have come across problems in recent months in respect of the lack of credit from banks. This applies to small businesses, farmers who had overdrafts and people who have loans for houses but are unable to meet repayments. In recent months banks have adopted a tough attitude, especially towards good customers. I do not believe that the banks lack finance. We hear regularly that the banks have no money but I do not believe that is the case. The banks are using NAMA and therefore I am concerned that NAMA should go through Second Stage in the House as quickly as possible, while having the proper debate, onto Committee Stage and be enacted.
There will be many amendments along the way. Finance spokespersons in the Labour Party, Fine Gael and other Opposition parties in this House will provide many good ideas and amendments. The Minister for Finance stated that he is prepared to listen carefully to amendments from the Opposition. This is the way it should be done. No one has a monopoly on wisdom on how we should deal with the financial situation in this country. We need all sides on board to deal effectively and quickly with the legislation so that banks lend to those who deserve loans.
Other Members from Wexford are in the same position as I am, having met people, particularly farmers, who had overdraft facilities of €25,000 or €50,000 in recent years for restocking purposes or other purposes. They receive a letter in the post telling them that the overdraft facility has been withdrawn completely or reduced by half or quarter. There is no discussion or dialogue. That is not good enough. Where people have proved to be good customers in the past, banks should be prepared to allow them to continue as viable family businesses or farming businesses. To pull the rug from under people at this late stage in the year will make people non-productive. This will lead to job losses and people will be unable to continue as viable propositions in farming or small businesses.
It is very important that the Minister for Finance and the Minister for Enterprise, Trade and Employment continue to have dialogue with the banks to ensure credit is available. The Tánaiste and Minister for Enterprise, Trade and Employment, Deputy Mary Coughlan, has this structure in place to encourage the banking system to lend. Sometimes I get the feeling it is not working properly. There is a need for a hands-on approach by the Tánaiste to ensure people who deserve credit and who have good repayment records are able to avail of it in the coming weeks and months.
Recently, I received a letter from a person who has been an employee of AIB finance and leasing for more than two years. Perhaps my colleagues in Wexford received the same letter. He is seriously concerned about recent developments in the financial services sector and from a professional point of view he is very concerned that while we discuss NAMA, deal with those who owe the billions of euro and are concerned with the income of farmers and small businesses those working in banks who were in no way to blame for the banking crisis may lose their jobs, be left behind and be forgotten about. He is very anxious that this should not be the case.
The letter states:
I believe that as part of this debate some thought should be given to the future shape and functioning of our financial institutions to ensure that the lessons of the current crisis are fully learned and taken on board. ... Furthermore, in considering how financial institutions should function in the future, it is clear that not only does the industry need much closer scrutiny in terms of regulation, but the culture of banking also requires a major overhaul to restore the traditional values of prudence, integrity and long-term stability. ... What emerges from the crisis is not a damaged banking system sustained by a piecemeal patchwork of short-term fixes - but rather a reformed system underpinned by a comprehensive approach designed to ensure that it can function effectively in support of economic recovery and social solidarity. Such a system should have due regard to the interest of staff, customers and shareholders as well as the public good.
The letter writer urges us as politicians "to ensure that the considerable outlay of public money being committed to address the current crisis does not become a catalyst for an assault on the jobs and livelihoods of staff working in the financial services sector".
From time to time, we politicians must call to the bank and speak with bank officials, although the wider world might believe that we do not have to and that we do not have any financial problems. I know from speaking with people working in banks that they feel very annoyed and concerned that ordinary working people are being made scapegoats for crazy decisions taken by people at a higher level. As a result, the general public feels aggrieved towards people working in banks and this should not be the case because ordinary bank employees work from nine to five on an ordinary salary and they are in no way responsible for the problems we now face.
The family home is an issue about which I am concerned. Many people will be looked after and catered for but those living in a family home who secured mortgages to build that home and have lost their jobs in recent weeks or months are under very severe pressure. A section in the new programme for Government deals with the protection of the family home. This issue requires much thought and debate as the NAMA Bill goes through the House. Will the Minister for Finance seriously examine how we can implement a system that will ensure the family home is protected and that people who may find it very difficult to meet repayments at present will receive a stay to allow them to pay back a small portion of their mortgage? They are not in a position to pay back the full mortgage at present.
Senator Marc MacSharry and other Senators put forward a number of options to the Minister for Finance, including interest-only payments, permanently extended mortgage payments, renting back property from the lender, a moratorium on fixed rates and redrafting mortgage terms. I will throw in a further suggestion. As Deputies Howlin and Kehoe know, the local authority operates a differential rent system whereby one pays rent based on one's income. It is very important that the Minister for Finance considers, in conjunction with the banks, how a differential repayment system could be initiated for a period of two, three or four years to enable people to make their repayments based on their present income. When things pick up and they secure a job - as they will - they will return to making full payments. During the debate on NAMA, there is a serious need to examine a system to facilitate people who are now finding it very difficult to meet mortgage repayments. It is very important that we examine this.
Some of the mortgages loaned to people were very high. People come to me who have mortgage repayments of €1,200 or €1,400 per month. How they ever secured a mortgage based on their income at the time baffles me; it shows that at the time the banks were prepared to throw money at the ordinary public regardless of their income. Now, when difficulties are arising, the banks want to put in the boot. That should not be tolerated. Will the Minister of State, Deputy John Moloney, take back the message to the Minister for Finance - we will do so ourselves at parliamentary party meetings and other fora - that the family home should be included in the NAMA debate? Concrete proposals should be put forward that will allow the banks and the Minister for Finance to come up with a satisfactory solution.
Deputy Kehoe and I attended a farming meeting last night where approximately 200 farmers were present. They were very concerned about a taxation proposal and that the 80% rate might affect land they would provide under CPO for road widening or bypasses. The Ministers for Finance and the Environment, Heritage and Local Government have confirmed to us that this is not the case and that the 80% rate will not be any way related to CPO land. When the Minister for Finance replies tomorrow will he confirm to farmers that they will not be liable for this 80% tax rate? Last night, we did our best to confirm to the farmers of Wexford that it will not be the case that CPO land will be included in the 80% windfall tax, nor should it be. The Minister should keep the IFA and the farmers of the country happy and confirm that this will not happen. Public meetings have taken place in various parts of the country where concern has been expressed on this matter.
This is about getting people back to work. We need to correct the country's finances as quickly as possible. While we hear about green shoots we have a long way to go. Every 1,000 people on the dole costs the Exchequer an estimated €20 million in social welfare payments and lost tax. That is a lot of money being lost to the Exchequer. It is also a lot of heartbreak and job losses are causing problems for many families throughout the country. Many worked in the building industry and earned good money and in County Wexford we were very dependent on the building industry which employed huge numbers of people. It is about time we examined how to get the building industry up and running again. Certainly, there is not a hope we will get it back to the way it was but there is still room for a certain amount of building to develop and I hope it does as quickly as possible.
I welcome the NAMA Bill. I hope it passes through the Houses as quickly as possible and that we can get on to lending to people throughout the country.