Feargal Quinn (Independent)

I welcome the Minister of State. I was listening carefully to this interesting debate while I was in the Chamber or down below. During the year, I read a quote by an American columnist who stated: "The safest way to double your money is to fold it over once and put it in your pocket." It was the best advice. Given what has occurred in the past year, we allowed ourselves to get greedy and to take steps we should not have taken. However, we must remember that we did well in the 1990s and the early part of this decade. It went wrong when we overstepped the mark.

I enjoyed listening to many of the contributions. I noted the comments of Senator Harris. In the context of NAMA, he referred to the economy being a little bit like a marriage in that one does one's best, but one is not guaranteed it will always work. The most we can do is concentrate on improving the Bill. I will not discuss what we could have done in the past. We will have NAMA, so we must ensure we make the best of it by querying it.

Perhaps some of my questions have already been answered. This is such a detailed Bill that it is difficult to know. How can NAMA estimate the value of properties on the current market when so few normal property deals are being done? NAMA will control a great deal of property, so what should it do? A few minutes ago, Senator Leyden discussed using the OPW. There is a tradition in that respect as the OPW could be used successfully. Perhaps this is the benefit of a debate in the Seanad. What will or should NAMA do with its property? Will it build new homes? If so, will that only add to the glut and affect prices? Is it possible that there will be both a NAMA guarantee and some form of nationalisation of one or more of the large banks? If so, surely the European Union and Commissioner Neelie Kroes, who is in charge now although she might not be later, could not allow the banks to be semi-private. Either they are private and have to pay back the money they owe or they are fully nationalised. I do not believe the European Union would allow us to have a half and half situation. It would not allow us to hedge our bets on that basis because if that were the case the Irish banks would have an unfair advantage over foreign banks such as Rabobank.

NAMA was set up mainly to remove bank loans for commercial property and land from the guaranteed institutions but what about loans for private homes? They come to the fore after commercial loans and are linked to unemployment. Private home loans have not presented a problem to date but it is clear that if the economy does not improve they will become more important. I am not sure that has been taken into account, given that NAMA was set up to address loans for property development rather than loans for private homes. If someone's income goes down by 10%, at the same time as his or her home reduces in value by up to 40%, he or she will still have to pay that loan. I am not sure we have received an answer to that serious question. Will banks face huge hits, and are they being taken into account in NAMA's projections? I do not think they are. Development property loans have been taken into account but not loans for private homes.

Surely the proposed 80% levy on land will delay the recovery of the land and property market, reduce current values and be an obstacle to NAMA selling land at an acceptable price. I am not sure I understand why the debts of Anglo Irish Bank are being covered by NAMA. What we need is to assist the banks that lend to small and medium enterprises. Anglo Irish Bank never lent to SMEs. It is a red herring to suggest that aiding Anglo Irish Bank will help our economy. I predict that Anglo Irish Bank will not even exist in a few years as there is no real need for it. We are all enthusiastic about getting lending to small businesses and private enterprise but I am concerned when I hear talk to the effect that the Government should be doing something to push the banks into lending. If we have a stake in the ownership of the banks I would prefer to see them make sensible decisions. I would not like us to specify that they should lend according to criteria other than good, commercial ones. As a taxpayer, I would not want to be a shareholder in a bank that would make bad decisions just because we are howling for them to lend to businesses.

I have concerns about the accountability of NAMA. We have recently been informed about the special purpose vehicle, SPV, of NAMA. I keep saying SVP which is the Society of St. Vincent de Paul. What really worries me about the SPV is that it will be a private company. That means the debts taken on by the SPV will be off-balance sheet. Perhaps the Minister will indicate if I am incorrect. We will still have to borrow the money but it seems to be a fudge to look good in the European Union. I have said that before. The EU has no choice but to accept the Government's plans because if we borrowed €53 billion or some such amount our budget deficit would be approximately 30% to 35% which would be unprecedented and could not be tolerated under EU rules. In short, it is an accounting trick but it is not fooling anyone. We still owe that money even though we are taking it off the balance sheet. I accept the European Union has approved of this mechanism and it has approved a similar approach in Germany but we are fooling ourselves if we think our debt is less than it is.

What concerns me most is the accountability of the special purpose vehicle. What will happen if we want to look at how the bad debts are performing? The Government could say it cannot report on a private company. Having a private company is a huge accountability issue. It is possible that ten years down the line it will emerge that we are even more in debt, to the tune of billions of euro, because the SPV has kept details hidden from the gaze of accountability we should direct at it. That is a major concern and I wish to see measures introduced in the Bill to ensure the SPV is not secret and is required to disclose how the bad debts are performing.

There is a possibility that a second derivative crash is on the way. We must prepare for the worst. What we are experiencing is a pure vanilla property market crash. I love that term. However, what may well happen - I hope it will not be the case - is that we will experience what economists call a second derivative crash. We have seen how there is a major problem in banks getting funding. They cannot borrow money for three months on the interbank market any longer in the way they used to do. In crude terms, the banks have gone bust and they cannot get access to funding. That situation will probably get worse in the next few months.

Given the rising number of people becoming unemployed, we will see an increase in the number of people who are unable to pay their mortgages and credit card bills, which will be a serious situation. Many people took out mortgage insurance, but that usually only lasts for one year, so there is a real danger that by Christmas time, we will see a massive deterioration in our circumstances. Even the International Monetary Fund has recommended that NAMA be extended to cover mortgages. I am not sure of the exact situation in that regard. I am pleased that banks are not foreclosing yet, but there is a danger that once the Bill is passed they will be much more aggressive. We need to consider how we will handle that. If a house is worth, let us say, €500,000 to the bank but it is not producing any cash flow, the bank will act in a purely business-focused manner and sell the house. We need the banks to act in a business-focused manner. As taxpayers, it is our money.

On the question of nationalising the banks, with NAMA we are pretending that loans are worth more than they are, but if the Government had bought the loans at their much decreased current market value, it would have to consider recapitalising the banks separately. I question the assumption by NAMA that we are at the bottom of the property market. We hope we are. The thinking behind NAMA is that it will buy the banks' bad debts. However, that is founded on a massive assumption, namely, that we are at the bottom of the property market. That is a completely arbitrary assumption that is backed up by hope but based on no evidence. The Minister, Deputy Brian Lenihan, has given no justification for paying the proposed amount for the bad debt. One only need to look at the market to see there is no real action in the housing market. We keep hearing about green shoots but crucially, there is no volume in the market so the prices currently paid for property do not reflect the true market value. That is why I am extremely wary of the assumptions that NAMA has made to justify the prices it will pay for the bad debt. There is also an assumption by NAMA that property prices will return to strong levels. The Minister indicated NAMA would need a rise in property prices of less than 10% from current levels over the next ten years to break even. That might be wishful thinking. There is no reason to assume prices will rise. People are losing their jobs and for those who manage to keep their jobs, their wages are going down, so people in general will have less money. Accordingly, people will have less access to loans so they will pay less, for example, for property. In economics, that is known as a deflationary fall. We might never see the hoped for rise in prices.

Let us look at what happened in Japan where there was a massive property boom in the early 1990s. As Morgan Kelly pointed out in The Irish Times, by 2005, which is 15 years after the peak there, "residential land had fallen back to its pre-bubble level, while commercial land had fallen by nearly 90%". Even when the Japanese economy was growing, property prices were still massively depressed. Many people are claiming Irish property prices will recover once the economy starts to grow again - we all hope it will. I do not wish to be a-----