Dáil Éireann debate -
Wednesday, 13 May 2009

Vol. 682 No. 3

Banking System: Motion (Resumed).

The following motion was moved by Deputy Eamon Gilmore on Tuesday, 12 May 2009:

That Dáil Éireann:

deeply concerned at the severe contraction currently taking place in the Irish economy, which is expected to be the worst in any developed country since the 1930s and the severe impact that the crisis in Ireland's banking system is having on the real economy, by restricting credit to viable businesses, which has contributed to the loss of almost 200,000 jobs in the past year;

determined to restore the flow of credit to Irish Business, to protect employment, to restore Ireland's financial reputation abroad, and to accelerate the recovery of the Irish economy;

noting the likely scale of losses that will be incurred by the Exchequer arising from the mismanagement by the Fianna Fáil led Government of the banking crisis, and the enormous risks to the Exchequer posed by the plan to purchase bad loans from the banks at undetermined prices; and

believes that a rapid resolution of the banking crisis, at minimum expense to the Exchequer, is in Ireland's vital national interest;

therefore calls on the Government to:

bring the institutions covered by the Bank Guarantee Scheme into temporary public ownership, as the least expensive, and most effective means of dealing with the banking crisis;

establish a Banking Commission made up of persons from Ireland and abroad of the highest reputation, to oversee the appointment of the boards and senior management of the banks, and to approve their business plans;

replace the present boards and senior executives of these institutions, under the supervision of this Banking Commission as a means of beginning to restore Ireland's reputation abroad;

ensure that the banks operate on an independent basis, under commercial mandate while under public ownership;

establish a trust or other mechanism which would give shareholders the option of retaining an interest in the bank, which would be translated into shares in the bank when it is returned to private ownership, the value of which would be set in relation to the true value of the banks at present and the cost to the State of dealing with the bad debts during the period of public ownership; and

set out a policy and mechanism for ensuring the continued presence of mutual banks in Ireland once temporary nationalisation is ended.

Debate resumed on amendment No. 1:

To delete all words after "Dáil Éireann" and substitute the following:

"affirms the importance of a functioning and well regulated banking system as a necessary requirement for the protection and development of the economy;

notes that the proposed wholesale nationalisation of the banking system does not address the problems of funding or bad debts in the institutions;

supports the Government's actions to stabilise and protect, in a structured and measured way, the financial system, while at the same time protecting the interests of savers and taxpayers; this approach includes:

the provision, at a charge, of a State guarantee for deposits and other covered liabilities of the banking system up to September 2010, in order to stabilise the funding position of the banks and add a further level of protection for depositors;

the recapitalisation of Bank of Ireland and Allied Irish Banks;

the establishment of the national asset management agency to take over, at an appropriate write-down, the land and development and other eligible loans of the covered institutions with the objective of cleaning and strengthening the balance sheets of the banks and thereby further assist them in fulfilling their primary objective of extending credit to sound business and personal customers;

the provision of a guarantee framework beyond September 2010 for future debt securities issuance by covered institutions with a maturity of up to five years; and

the reform of the financial regulatory system which will place the Central Bank at the centre of financial supervision and financial stability oversight;

expresses its confidence in the Government's actions, as set out above, to stabilise and revitalise the banking system as a necessary pre-condition to tackle the economic downturn and to restore the economy to sustainable growth."

—(Minister for Finance)

Deputy Richard Bruton

I welcome the opportunity to debate this issue. It is unfortunate that on a matter of such enormous importance as the establishment of an asset management agency which will manage €90 billion of taxpayers' money, the Government has sponsored no debate. It has required the Labour Party to table a motion in the House to have any sensible debate on these issues. That is unfortunate because this is an extraordinary decision by Government to establish a national asset management agency on the basis of the thinnest and flimsiest assessment of its merits.

Fine Gael has a very different view from the Government's approach. We believe now is the time to establish a new, State-run national recovery bank whose task would be to fund investment for job creation and activity in the Irish economy. It would be based on providing liquidity to good lending in our economy to bring money straight into the vein of small business and get good lending going again.

Nothing like sufficient thought has been put into the Government's proposal of an asset management agency. At a time of serious uncertainty when governments across the world are groping cautiously to find solutions, it is not the time for a small country with a deep problem in its public finances to attempt to plunge into a project on a scale never before attempted in any other country. That is the reality. The French Government undertook a similar, although much smaller, attempt of this nature in 1995 and it ended in tears with taxpayers losing very significant amounts of money, €18 billion, on a much smaller operation.

Serious concerns have been raised, not just by spokespersons in this House who might be regarded as Opposition, but by people who are entirely independent in their assessment of NAMA. None of these has been answered. We have the difficulty of pricing the loans, of which the Government seems to be aware, and the risk that taxpayers will be left shouldering the losses. We have the risk of unending court battles with developers and others who seek to challenge the agency's approach to dealing with impaired loans. We have the moral hazard of bailing out professional investors who put their money into the banks. They were grown up, knew what they were doing and invested in this banking bubble. We are saying the taxpayer should shoulder that, which is the logical implication of what NAMA will do.

We are establishing an agency that will manage a book value of €90 billion in development land. This is on Napoleonic scale. We have not seen the management approach that can deal with this. All the records of evidence in other countries show that the management of this proves to be highly unworkable and that it proves to be unable to recover money on the scale of other approaches that would be preferable. NAMA opens up the possibility of the politicisation of the write-off of loans and the management of these issues.

These are very serious hazards and none of them has been addressed. No evaluation of this proposal has been published, other than a flimsy document by an economist whose credentials are clearly open to question and who came from the stable of development. While one can assess his paper on its merits, we need an independent stress test. We are talking about stress testing the loan books in banks. Surely we should stress test the Government's proposal to take €90 billion of impaired loans onto the shoulders of the taxpayer. Where is the stress testing of it? Instead we hear the Government is rushing headlong with this proposal. Without a single endorsement from this House on the proposal it has already appointed an acting chief executive, is about to appoint a board, is plunging ahead with the legislation and refuses point blank to use powers available to Government to discuss the heads of the Bill in this House so those who represent taxpayers can have some say about what taxpayers are being asked to shoulder. The Government will not agree to any of that.

I can well understand why some people, and the Labour Party is doing it tonight, favour nationalisation over this extraordinary animal the Government is creating. However, we must tread carefully with regard to nationalisation. Although it would not require an immediate investment of cash by Government it involves many of the difficulties thrown up by the Government's approach. If we decide the taxpayer is going to nationalise the institutions the taxpayer is then forced to shoulder all the potential losses. This system risks the taxpayer having to pay too much for the shares and creates a situation in which professional investors are bailed out by the taxpayer. Once again, lending decisions are politicised. There are significant problems with the operation of nationalised banks and therefore nationalisation should not be seen as a panacea. It resembles the Government's proposal in that it is one major throw of the dice to which the Government would commit us without our having adequate sight of the territory that lies ahead.

Fine Gael proposes a different approach, one that is much more gradual in its action on this problem. The first action is to establish a national recovery bank that would provide liquidity to the banking sector. This can be done under the asset-covered security legislation which is well established. The vehicle is there and it could be done within weeks, using taxpayers' money, perhaps €2 billion. On the back of that sum we could leverage as much as €40 billion in credit activity, whether purchased from the banks or as a new loan.

The advantages of this approach are several. It gets credit flowing straightaway and allows the banks to strengthen their balance sheet by swapping part of their loan book for cash. It creates a solid spine for long-term banking in this country so that there is a strong wholesale bank underpinning present and future banking here. It allows the existing relationship between businesses and their banks to continue because that is still the vehicle for selling loans. It leaves the toxic property loans in the hands of the private banks that created them and which have better incentives and skills to manage them than we have. Vitally, it leaves it to the banks to refocus on structuring their operations, working out the losses, not expecting the taxpayer to step into the breach as the first to take and shoulder them. It allows those who were involved to carry the risks and costs and share the burden. It does not claim that the taxpayers should be first up to take that burden. Of course, the problem of unwinding those impaired loans remains but it will be unwound with responsibility for the problem lying in the first instance on those who created it. It will not find the taxpayer stepping in as the first lender.

This approach also allows us the time to look at what other countries are doing. I believe other countries will see in their wisdom that the taxpayer cannot save everyone and cannot be asked to rescue the professional investors who knew what they were doing when they entered into their lending commitments to banks. These were not innocent depositors with small amounts of money that would otherwise have been in their mattresses but were grown up investors who knew what they were doing. I do not believe the taxpayer should have to step up to the plate to bail them out, which is what both nationalisation and the NAMA approach would involve.

In this very difficult circumstance we face, with our public finances in serious difficulty, the taxpayer cannot simply shoulder the burden of dealing with those professional investors, allowing them to recover their money at 100%. We must look at other and better ways to resolve this problem. The virtue of the Fine Gael approach is that it allows time to do the negotiation and find ways of making those others who were professional investors share their load in the losses. That is vitally important.

It is notable that France, which got its fingers burnt in a NAMA-type approach in 1995, is now adopting an approach very similar to the one we are advocating the Government should consider. It is a type of asset management agency that does not purchase toxic loans but instead buys the good loans. It provides the flow of credit into the banking system that can fuel the small business lending and mortgage lending the country needs but under rules that are decided by the State. With that approach we would no longer have 100% mortgages or bad decisions in putting together loans. Such a wholesale bank would be in a position to dictate the terms on which banks would operate.

I do not wish to overrun.

Acting Chairman (Deputy Kathleen Lynch)

The Deputy's time has concluded.

Deputy Richard Bruton

Ireland would be foolish to rush into solutions now on the basis of a report from the NAMA and a few other advisers at a time when we would be closing off other solutions that clearly are being considered by other countries and for which momentum is growing across the world.

Acting Chairman

The Minister for Communications, Energy and Natural Resources, Deputy Eamon Ryan, has ten minutes. I shall read out the list of those Members with whom he intends to share time. Deputies Mary White, Beverley Flynn, Michael Moynihan and Thomas Byrne have five minutes each.

Minister for Communications, Energy and Natural Resources (Deputy Eamon Ryan)

Some countries are very fearful at present concerning the central fundamental issue of how we are to restore our banking system. Very many mistruths have been put about that have increased that fear. There is, for example, the mistruth that there has been no consideration or analysis behind our proposal. Detailed and lengthy analysis has gone into it, not only in the Department of Finance and within the political system but the approach was supported and suggested by the European Central Bank, the European Commission and the National Treasury Management Agency. The latter has real everyday knowledge of what it is like to be out in the bond markets trying to raise money amid what is happening in the international markets concerning Ireland's reputation.

I have had lengthy meetings with individuals in these bodies and elsewhere, teasing through the consequences and details of how this approach would work and what are its downsides and difficulties. These exist because the process is not without risk. However, to portray it as being created without analysis is doing a disservice to the people because it is creating and stoking fear. This will not help but will hinder us in getting out of the difficulty we have. We need to move beyond the politics of stirring up and creating fear——

Deputy Richard Bruton

The Government should publish its analysis.

Deputy Eamon Ryan

With regard to precedents elsewhere, what we are doing is very similar to what the UK is doing and it is within the same timeframe. The UK is not adopting the gradual approach proposed by Fine Gael in the belief that over time and slowly this business will wash itself out. The United States Administration does not believe such an approach is the right one. All the best banking and economic advice declares that we cannot ignore the situation, put our head in the sand and hope it will go away. It is better to address it and the first principle of this approach is to recognise the losses that are real.

We created a property bubble in this country that has done real damage. No political party can stand up in this House and say it did not see this happening or that it did not have a role in keeping it going. In 2005-06 when the property bubble was losing the run of itself parties on every side of this House were calling for cuts in stamp duty, keeping the rise in prices going because we thought it was a measure of success. It was a trap that we got ourselves into and now we must get ourselves out of it, honestly, collectively, collaboratively and with consensus. That is what the head of the European Central Bank said. That is what worked in Sweden before when that country followed the very same process.

I recognise there are different approaches and one might argue for various different ways. I find it difficult to see how the Fine Gael approach would work because I believe that in that fundamental deferral of recognising losses we would see a continuation of the present situation, namely, a shutdown on lending and investment, in development and construction and in key areas of our economy. That would only continue to do damage and would not get us out of the problem. It would keep it going and make it worse.

As I understand it, and it is hard to understand the exact details, it is possible to create a supposedly good bank and declare that it will provide liquidity. However, with the Fine Gael proposal, what would happen to the major serious Irish clearing banks is that at some point they would have to recognise the losses that exist. I presume then they would have to default with regard to their position. What would happen to those banks then? These loans do not disappear. The property bubble existed and will not merely deflate in its own controlled manner. We must recognise this and get over it by managing the various assets. In that way, by doing it quickly rather than gradually, as Deputy Bruton suggests, I believe we will turn the economy round, start recovery and begin to get people back to work.

The Labour Party's proposal for the nationalising of banks is very different, as the Fine Gael spokesperson noted. There are real risks in adopting such a clearly considered approach. However, the fundamental problem is that the property bubble was funded by international finance. Our banks got short-term money from Germany and elsewhere. In banking terms they were making a fundamental mistake. They were borrowing short to lend long, and now they have a real difficulty n covering that position.

However, we continue to need international funding in Ireland. It is difficult to be scientific on this and to be precise, but the analysis from expert advice, the NTMA and elsewhere, is that if we nationalise all our banks, as has not been done in any other liberal democracy at the present time, we would have real difficulty in raising funds to keep our banking system going.

The liquidity issue has been the most difficult problem, and it has been difficult in Government——

Deputy Michael D. Higgins

That is an assumption.

Deputy Eamon Ryan

It is an assumption, but in Government one is called to make judgments on such assumptions. It is not easy but one has to take the expert advice one gets into account. It is hard in many instances for the public. People are complaining that they had been assured the liquidity position was fine, when it was not. One has to be careful and must present a certain picture to actually help the country get through these difficulties. It is not in our interest to talk ourselves down and see money running out of the country, which makes the problem only worse. We have acknowledged the problem and the scale of the difficulties we face, but we should not let it run away from us. I have a real fear that in nationalising the banks we would create a situation whereby all our faith would be in the Department of Finance in Merrion Street. As good as the Department of Finance is, I do not believe the people in it have the skills and ability to run six banks.

I agree with Deputy Bruton. The NAMA allows us to do what he is suggesting regarding the use of some of the resources within the existing banks, as we manage them back to recovery by taking out the bad assets, to raise funds internationally and manage the credit. They can do much of the work, co-ordinated by the NAMA, in terms of the management of these assets. We are not getting rid of tens of thousands of bank officials. That is not in our interest. We need to keep the good people that are in the baking system working — and we can do that under the NAMA proposal. Collapsing everything into the Department of Finance and expecting it to have the ability to do it, is not on, and I do not have faith that such an approach would work.

Deputy Ruairí Quinn

The Minister has not read the motion. Nobody is proposing that.

Deputy Eamon Ryan

I also believe that there is a better way, that there is——

Deputy Ruairí Quinn

Nobody has proposed what the Minister just asserted. He is wrong.

Deputy Eamon Ryan

Nationalisation with State ownership of all six banks——

Deputy Ruairí Quinn

Irish Life & Permanent is not run by the Department of Finance. The Minister is wrong and does not know what he is talking about.

Deputy Eamon Ryan

Excuse me, I do know what I am talking about. I have been working on this for six months and what I see is that nationalisation, the approach being advocated by the Labour Party, means that the State takes control of all the six banks.

Deputy Ruairí Quinn

Irish Life & Permanent is not run by the Department of Finance.

Acting Chairman

The Minister is almost at the end of his time. Please do not interrupt any more.

Deputy Richard Bruton

He is at the end of his tether.

Deputy Eamon Ryan

I believe the State can take a shareholding in the banks, as has been done in the UK, but under that method, rather than under nationalisation, market scrutiny is kept on what is happening and a stock market price is kept going which gives an index on the progress being made in terms of getting the banks back working and, crucially, the taxpayer has a chance to sell back the shares and get a return for the investment. That is one of the reasons why I believe the NAMA approach rather than the nationalisation one is the right way forward.

I will not denigrate the approaches, or dispute the right of Deputies to propose alternatives, but let us not scare people to death by lines to the effect that the NAMA is a bailout for the banks or developers. It is not that but rather an attempt to address a fundamental problem. I believe we can do it. We can get recovery into the economy by following this approach. It is right to do it quickly rather than the Fine Gael approach of doing it gradually. It is right to use and follow the advice of the NTMA, the European Commission, the European Central Bank and just about every other country. The US and UK Administrations are following similar approaches. This is not without precedent. Other countries have done it successfully and I believe we can do it if we work collectively and cleverly. That can happen within the National Asset Management Agency.

Deputy Mary Alexandra White

Nothing could be more important than the stabilisation of the banks. This is so vital for our economy, our retail and business world and we have got to get it right. We have an opportunity now to do just that.

I believe that the approach the Government is taking to treat the significant level of toxic debt in the banks is more sensible than nationalisation, as proposed in the Labour Party motion. The NAMA will have effective control of the banks in terms of the tidying up of the bad debt and in that regard what is being proposed serves the same purpose as nationalisation. The safeguards proposed for the legislation will ensure that the banks will have to comply with the NAMA in terms of what the agency will be doing.

The NTMA has a proven track record and much experience in dealing with debt and I believe can be trusted, if the preparatory work is done well. The Labour Party says that part of the case for nationalising the banks is the danger of the State having to value bad loans, but the agency which will act on behalf of the State will have the competence to do this. By allowing the NAMA to take over the land and development books of the main banks, the management of these debts will be undertaken in a controlled environment, which will ultimately allow the banks to attain a sound footing quicker than by internal management of the debt through State ownership. Furthermore, I am confident the safeguards the Government has put in place in relation to banking measures over the last nine months ensure that the taxpayer gets best value for money from these stabilisation measures.

With the NAMA in the picture, market value will be brought to bear on the value of the toxic loans as well as the provision for a levy to be imposed should the agency incur losses on the debt. With the State guarantee a fee income of approximately €1 billion will be generated, and with the recapitalisation there is the annual dividend of approximately 8% return on the preference shares, with a return of 125% of par value if preference shares are not redeemed within five years.

It is important at such a sensitive time to say that no blank cheque has been written for the banks, no touchy-feely deals have been going on and no-one is playing footsie under the table to give the banks more leeway. In no way can the banks skip the light fandango out of town. There are real measures here to improve the economy.

Two related issues concerning the stabilisation of the banks should be noted. The significant amount of development land at issue regarding the NAMA will have to be considered as planning policy is developed in the coming years. We are talking about major tracts of land. Central and local government will have to ensure rezoning and other planning matters take account of the scale of land now available, and learn lessons from the irresponsible policies which encouraged the overvalued purchasing of it. I am confident that the Green Party reform of planning and local government will address some of these measures. We never took the developers' cheques or donations, so our hands are clean on this.

The stabilisation of banks must come in tandem with the release of urgent credit to struggling small and medium-sized enterprises across the country. That is why we are doing it, to get the money flowing and put the economy on the right track. Debt evaluation must be decoupled from personal debt, mortgages and businesses. The latter must be given the bridging loans, overdraft facilities and capital they need to survive. This is the crux of the matter. Businesses are hurting in the market place. The sooner the NAMA becomes operational and banks can lend to businesses, the sooner those longed for green shoots for economic recovery will begin to sprout.

Deputy Beverley Flynn

I, too, welcome the opportunity to speak on this motion and I agree with much of what the Minister, Deputy Ryan, has stated.

The reality is that the banking system in Ireland today is frozen. No business is being done. Companies are going out of business every day, time is of the essence and unfortunately we cannot afford to wait. I note Deputy Bruton's point that the Government should take care and not rush. The reality, however, is that many businesses have been experiencing an enormous starvation of credit for more than six months and cannot, unfortunately, afford to wait any longer.

Nationalising the banks will not solve our problems, and neither will limited recapitalisation. We have already nationalised Anglo Irish Bank and that has not changed anything as regards the capital or the funding requirements within that bank. One result of that nationalisation is that the State will be taking full responsibility for the funding requirements of Anglo Irish Bank for the future. The Government has stated that in terms of recapitalisation it may well be that the €7.5 billion promised is not sufficient. It has also stated that if further moneys are required then we will be taking equity stakes in the various banks, which may well result in a majority shareholding for the State in these banks.

There is plenty of international evidence to the effect that nationalising banks has proven to be very poorly regarded. International evidence shows that government owned banking systems serve their economies very poorly, resulting in higher interest rates and less private credit, with what credit is available going to larger firms. Even Deputy Bruton stated that state owned banks can come under political influence. The Opposition are not united in their approach to bank nationalisation.

Greater state ownership has been associated in many countries with greater crisis in financial sectors. In Ireland, we are trying to achieve a commercially focused independent banking sector. State ownership is the last resort and always should be viewed as such.

The National Asset Management Agency is not the friend of the banks because it will require banks to crystalise their losses on their balance sheets. Neither is it the friend of property developers. However, NAMA can be very good news for the Irish taxpayer. Given the effort the Government is putting into the running of the agency, over time it can be a profitable operation for the Irish taxpayer.

We want to see Irish banks getting back to doing day to day business for small business people and mortgage holders. At present, that is not happening. We want to see better regulation in the banking sector.

Deputy Joe Costello

Why then does the Government not change its policies?

Deputy Beverley Flynn

That regulation is currently being improved by the Government. The key message must be protection of the taxpayer. Since the introduction of the bank guarantee last September, protection of the taxpayer has been of paramount importance to the Government. The fee for the guarantee will amount to €1 billion over two years. The dividend on the preference shares will be €560 million in a full year to the National Pensions Reserve Fund. If these preference shares have to be redeemed eventually, they will be redeemed at 125% of their value.

In addition, the Government's recapitalisation proposals impose additional requirements on the banks as to how they deal with their customers. When I spoke on Second Stage of the Finance Bill earlier today, I highlighted the importance of protecting mortgage holders. I want to see banks making this an absolute priority. People with one residence and one mortgage must not lose their homes. When NAMA is operational, I expect that banks will be required to make that a priority.

We must free up credit to get business moving and make sure taxpayers get a good deal and a good return on their investment. The measures introduced by the Government can achieve this. I ask the Opposition to support those measures. The objectives of Government and Opposition are the same. We are all trying to reach the same end, which is to free up money. We may have different ideas as to how that might be best achieved, but working together in the national interest we can arrive at a proposal which will work for the Irish people. We live in extraordinary times and terrible economic circumstances.

The banking crisis has led to a reduction in our overseas development aid. Could the banks not make up the shortfall in our overseas aid budget? In that way the recapitalisation of the banks might become more acceptable to the Irish people. That would be very important.

Deputy Jan O’Sullivan

Development aid should be dependent on bankers' generosity.

Deputy Michael Moynihan

The stark reality is that the banking system is not providing credit for small to medium sized businesses or anyone else. Some people say we should take a long-term view and caution "steady as she goes". However, serious decisions must be taken quickly to ensure that businesses have access to credit and we get the system moving. If businesses do not get the credit which is so badly needed they will fail and add further to the current chaos.

The banking system almost collapsed some months ago. There was reckless lending by financial institutions, particularly in the past four to five years. When the office of the Financial Regulator was established, power was taken from the Central Bank. The new proposals place the Central Bank at the centre of financial supervision as well as having a regulatory body. That is fundamental to our economic wellbeing and to our banking system.

People say Irish banks never loaned money so recklessly. They forget that this happened in the late 1970s and early 1980s, particularly among the agricultural community. Many farmers borrowed heavily on the advice of banks when land prices were at their peak and some lost their businesses and family holdings. Banks were giving money to neighbours to outbid each other on land and it was all based on false economy. Huge efforts were made by the Government in the 1980s to rescue the farming community. However, we did not establish draconian regulations to prevent the banking system from behaving in that way again. As public representatives, we must now introduce draconian regulation to ensure that what happened in the recent and more distant past will not happen again. It behoves us to ensure such regulation is put in place.

I now turn to the National Asset Management Agency and the difference of opinion as to how best to approach the current banking difficulty. Banks are not lending and businesses are going to the wall because of lack of finance. We must do something immediately and face up to these serious and real difficulties. The structure of the National Asset Management Agency is well thought out. The National Treasury Management Agency, which has done excellent work in managing the country's finances since it was established 20 years ago, has the necessary expertise. The system can work, despite experts on all sides saying otherwise.

We do not have time to wait. We must get the financial institutions working again. It is a cheap political shot to speak about bailing out banks. That is not what the Government is doing. It is bailing out small businesses, mortgage holders and ordinary punters, who are in serious difficulty and looking for credit, and thereby bailing out the entire economy.

The banking system has been ridiculed. A person who came to tell me about the difficulty he was having with his bank remarked that banks are your friend until you need them. Many people now need a friend in a financial institution but cannot find one. It is time we got the real economy working and credit flowing. I commend the Government's amendment to the House.

Deputy Thomas Byrne

Deputy Flynn observed that we are all seeking the same objective, but when the Government side of the House proposes a solution we do not hear rational argument. Instead we hear of builder bailout and bank bailout. That does a disservice to the debate on one of the most serious issues the State has faced. While Deputy Gilmore's assertion, based on an article in The Irish Times, that this is the most important debate in the history of the State is a gross exaggeration, this is one of the most important issues faced in the history of the State. Describing the National Asset Management Agency as a builder or banker bailout does a disservice to the country and to the future of the economy. It might elect a few more councillors or even MEPs but it will do no more than that.

A couple of weeks ago, the Labour Party said it had received legal advice that the agency could not be operated without legislation. According to the Sunday newspapers the builders are getting together to sue the Government and to put down NAMA in the same way as the Opposition. The builders and the Opposition seem to be on the same side in this case.

Deputy Ruairí Quinn

The builders are in the Fianna Fáil cumainn.

Deputy Joan Burton

The Deputy should talk to them about it.

Deputy Thomas Byrne

I agree with Deputy Beverly Flynn.

Deputy Beverley Flynn

Not at the minute.

Deputy Thomas Byrne

The Labour Party wishes to get construction workers back to work. The reality is we must get some builders back in business.

Deputy Ruairí Quinn

The Deputy should talk to his party's cumainn. He raised the issue.

Deputy Thomas Byrne

The builders are now up in arms about NAMA. This is far from a builder's bailout as the Labour Party has described it.

Deputy Ruairí Quinn

No we did not.

Deputy Thomas Byrne

The reality is this is very serious. The debate would be best served by a rational approach, not by instinctively opposing everything the Government has tried to do. The Labour Party opposed the bank recapitalisation, the State guarantee and the nationalisation of Anglo Irish Bank. It voted against that measure in the Dáil.

Deputy Ruairí Quinn

We were against its terms.

Deputy Thomas Byrne

The Labour Party voted against the nationalisation of Anglo Irish Bank in the Dáil. That is on the public record. It is now calling for a temporary nationalisation of the banks. Deputy Gilmore makes a virtue of cleaning up the banks. Does he require a sweeping brush or a can of Pledge, because he has not outlined what he intends to do?

Deputy Joe Costello

Let us hear Deputy Byrne's solution.

Deputy Thomas Byrne

The NAMA proposal will clean out the banks. It will take all the good and bad debt out such that there is no argument over which is good and bad. Our proposal is to clean out the banks, to get the banking system working, to get the economy up and running and to get loans out to businesses.

Deputy Joe Costello

The Government has been at it for eight months now with nothing to show for it.

Deputy Thomas Byrne

The banks are against our proposals too. Instead of calling it a bank bailout or builders' bailout the Labour Party would be better off taking part in a rational and constructive debate and to indicate what represents a good measure and what represents a bad measure. This is not the case, they simply instinctively oppose everything. It is not serving the country well. It may serve the Labour Party well for the local and European elections but in future it will be a disservice to the Labour Party and the country.

Deputy Joe Costello

That is a pathetic contribution.

Deputy Thomas Byrne

We are in a serious situation. We have taken the lead in several areas. The State bank guarantee certainly saved the banking system. The recapitalisation is necessary but we should remind people that it is a loan which must be repaid at a relatively high rate of interest. That point is always forgotten and ignored. It is almost as if one's Christmas bonus is paying for the bank recapitalisation although nothing could be further from the truth. I urge everyone in the House to consider this point because we all have the same objective. Our motives are questioned but we have the same objective of ensuring that the banks are able to perform and work and that the economy gets back on its feet. There are some signs of hope and of a slowdown in the slowdown. We would be very pleased if this were the start of a turnaround. That is what gives confidence and confidence has been crucially absent.

I agree with Deputy Beverly Flynn on the issue of mortgages. I have done a good deal of work in that area. Issues such as negative equity result in a substantial sap on people's confidence but solutions exist. Apparently some of the covered institutions are seeking a slightly higher variable rate. If this is the case then why not cut off a certain lump of the mortgage? Some people who are working and in a position to pay might rather pay a slightly higher rate of interest if they thought their negative equity was being addressed and if there were forgiveness of some of the loan. That is one possible solution to the matter of negative equity. The issue of negative equity must be examined also in cases where people must move house. Let us consider the case of a family in a one bedroom dwelling which cannot move but with a child or children on the way since property values declined. Such people should perhaps be able to take a negative equity mortgage to move to a larger property.

Perhaps Deputy Bruton's solutions are more properly thought out than what has been offered by the Labour Party, as one might expect. However the debate serves to remind the people that two weeks ago there was a debate on Fine Gael's main job creation plan which was to have been the answer to all our prayers. Nevertheless, the Labour Party did not vote for it in the Dáil. Tonight the Labour Party has proposed what it has described as the most historic debate in the history of the Chamber, which is an exaggeration. It proposes nationalising the banks but Fine Gael does not agree. The people will ask who has the coherent solutions, who is providing real answers and who is upping the ante politically.

Deputy Jan O’Sullivan

It is not the Government.

Deputy Joan Burton

A poor try.

Deputy Thomas Byrne

They may also ask who will win council and European seats. However, one will find the answer to who will get the economy back on track and who will get people back to work on this side of the House.

Deputy Beverley Flynn

Hear, hear.

Deputy Ruairí Quinn

I propose to share the 30 minutes allocated with Deputies Jan O'Sullivan, Joe Costello, Joanna Tuffy and Kathleen Lynch. The Labour Party motion is not about ideology but methodology. The Labour Party does not wish to own the banks, we wish to fix them. The banks cannot fix themselves, as we have seen in the past nine months. We saw what took place today at the Allied Irish Banks annual general meeting. Bankers have been in constant denial. Anyone who knows banks, and there is one such Deputy in the House, realises that the people who have caused the problems cannot fix them any more than the rest of us could do so in such circumstances.

Initially, the concept of NAMA had some attractions. I supported it because we must get the toxic debt out of the way and return to normal banking operations. However, upon examination of the small detail, it seems the difficulty is that NAMA is supposed to take the book value of toxic debt, which is of the order of €90 billion, off the books of the banks such that the credit of the banks can be restored in the international markets, which is critical. What discount will NAMA give on the real value of the assets and how does one measure the real value? All the property expertise is in the banks. Developers, with whom I have worked in the past, are not ordinary domestic borrowers with a mortgage, a car loan, an extension loan and so on. They are involved in highly leveraged, sophisticated, back-to-back arrangements with interest deals rolled up and piled up which are utterly different from the loans people usually arrange. The expertise to deal with these arrangements is not in the National Treasury Management Agency. The Minister who spoke on behalf of the Green Party referred to the NTMA's experience in managing debt. It has no experience in managing this type of debt. That is a misnomer and it is misleading.

We know that if one were to transfer the debts and loans of a given developer, irrespective of who that developer is, from a bank to a new agency and if that agency informed the developer what is owed to it, the matter would go to the courts. In some cases the money owed by the developer may have been sourced in three or four different banks. We know from the tribunal involving Mr. Goodman and others that there will be five years of litigation in the courts because most developers will simply ask their legal advisers to buy time.

Deputy Thomas Byrne

They would seek legal advice anyway.

Deputy Ruairí Quinn

We have done so. I know a little about this territory but none of us knows enough. That is why we must work together. We are not about ideology, but about trying to fix the system. We wish to return the banks to private ownership in due course. The Labour Party has made this proposal elsewhere and I will speak on the matter very briefly.

The country's international reputation has been shattered on all sides by the antics of our bankers. We are the most exposed and open trading economy and community affected. We must restore that and a banking commission headed up by an Irish person of international reputation such as Mr. Niall Fitzgerald or Mr. Peter Sutherland should be established. Alongside such a person we must hire a former German, French or American central banker to give reassurance to the international markets. We must put credibility back into the system. We must sack the entire board of the Central Bank. Henceforth, the post of the Governor of the Central Bank must no longer be the sinecure for the retiring Secretary General of the Department of Finance, but a post of international importance open to international competition.

We must examine the reality. If the Government's NAMA proposal is to remove the toxic debt, with a book value of €90 billion, such that the banks can get on with the real business of everyday banking, what discount should the agency give? Let us suppose it is 66% or a two thirds discount. It would then be left holding something of the order of €30 billion without the necessary expertise in the NTMA. However, another method would be to get the banks with no legal complications for between €2 billion and €3 billion if we converted the recapitalisation moneys already given. In that way we could get them for no more than we have already given.

Deputy Beverley Flynn

That still does not solve the problem.

Deputy Ruairí Quinn

It solves the problem in this way. One could then argue there is no legal problem because the developers who had loans with banks X, Y and Z still have the loans with those banks. The legal relationship between the borrower and the lender would not be changed in any way and could not be challenged. There is good property expertise in the banking system and it could evaluate the real and potential value of such loans. It could address the questions of which loans to form and the capacity to repay. Certain loans could then be isolated and put to one side.

The problem the Labour Party has with the NAMA proposal is in the detail rather than the concept. We all recognise there must be a transfer of the toxic debt out of the way to provide for the resumption of normal, healthy banking. On that matter the House, including Fine Gael, Fianna Fáil and Labour, is agreed.

How much will this cost? The NAMA proposal is not costed. If one paid one third of the book value of loans one would assume or would be obliged to transfer in some shape or form €30 billion. However one could get the entire shooting gallery for between €2 billion and €3 billion.

Deputy Beverley Flynn

One must still solve the problem.

Deputy Ruairí Quinn

One must still solve the problem. However, we would propose a clear out of the boards of management. They would not be run by the Department of Finance, as the Minister, Deputy Ryan, attempted to suggest, in the way that Irish Life was in its heyday as a successful commercial bank, 98% of which was State owned. There was no interference from Merrion Street in the way that financial house operated. We would tell the new staff and management there were flat rate salaries and no bonuses, and when they bring it back to the market in seven to ten years' time, 5% or 10% of the realised value will be their shared bonus pool. We would turn to the shareholders and say we are sorry they lost their shirts. Those of us who saw the "Six-one" news today saw the tragedy that has become the reality for so many of them. We would tell those people, many of whom are elderly, they have been taken to the cleaners. They invested for the dividend as much as for the value of the shares. We would tell them the Government does not want to make a killing from the nationalisation and refloatation and that when the bank's value can be maximised and it is refloated, once the State and the taxpayer have realised what they put into it, the balance will stay in a pot, and 30%, 40%, 50% or whatever it is will be divvied out to the existing shareholders. We can say to the granny or grandfather whom we saw on TV that they might not see the money but their children and grandchildren will get it.

That practical, operational system would work within the existing legal framework and no legal challenge could interfere with the process. As Deputy Flynn said, we have nationalised Anglo Irish Bank and there has been no change. The sky has not fallen in. It has to do its business. The real problem is that Anglo Irish Bank was not a high street bank but predominantly a property bank and additionally a small business loan bank. It did not deal with pubs in Kildare or businesses in County Mayo. Essentially, it was AIB and Bank of Ireland that dealt with them, and north of the Twenty-six Counties, perhaps Ulster Bank. They are the banks that are not lending, and businesses are suffering because those banks traditionally evened out the cycle of cashflow and all the other problems that are common to businesses. We have to get the banks working again, and the best people to do that are the vast majority of the staff, who were not on the crazy roundabout of bonuses for property gambling. Bank of Ireland and AIB reluctantly followed Anglo Irish down the path, Bank of Ireland most reluctantly of all, because of what happened to the share value of Anglo Irish. Anybody in the banking industry would tell us that.

The Labour Party's point is that we need a practical methodology to fix the problems soon. The Government has been at this since last September. Deputies know from what they hear from their families, constituents and others that the banks are not lending. To use parliamentary language about it, they have been telling us "untruths". We heard that from Mark Fielding on the radio today. A bi-monthly survey showed the refusal rate for working capital of €15,000 to €20,000 for ordinary corner shops and small businesses has increased from 48% to 58%. Two years ago, the rate was about 28%. Mark Fielding is not a card-carrying member of the Labour Party or a rabid socialist who wants to control the commanding heights of the Irish economy. We are quoting facts from the marketplace.

NAMA will not work because we do not yet have a single iota of detail on it. We heard that down in the Treasury Building there is a group of people who have expertise in evaluating very complex loan books. Deputy Flynn, perhaps more than anybody in this House, knows just how complex such loan books are compared with, for example, my mortgage, my personal account and my second account. They are from a different planet or a different world and nobody except the people in the area can evaluate them. For that reason, the solution is to take temporary ownership of the banks, sort out the bad debts, refloat the banks, give money back to those who deserve it and the shareholders who own it, and get the country moving again. It is not moving at present.

Deputy Jan O’Sullivan

As Deputy Quinn and other speakers from the Labour Party said, the issue is not about ideology but methodology. However, it must be seen against a background of the failed ideology of the right, which suggested unrestrained market capitalism with light regulation was the answer to all our problems in the world and would provide money for everybody. That ideology has clearly failed in the rest of the world, but it has particularly failed in Ireland because of the property bubble. We debate the matter with that failed ideology in the background. It proposed that, somehow, greed would keep the market flowing and keep money in countries such as Ireland, but is has clearly not worked. We are described as having an ideological motivation, but the opposite is true. It is the people who criticise our ideas who have an ideological motivation. It is also interesting that many of the commentators who support us do not share the Labour Party's ideology.

People's confidence in the banking system must be restored, but they will not be confident unless the culture of banking is changed, and I see no evidence that the NAMA model will change the culture. There is no guarantee that, in five years' time, when the banks have got rid of the toxic loans, they will not be doing the same things again, lending to speculative developers and starving small businesses of funds. The first thing we must do is root out the ideology that ran the banks in recent times. We must change the culture and restore people's confidence.

I, too, listened to the gentleman from ISME this morning talking about the fact that 58% of small businesses cannot get loans, which is pretty much double the percentage two years ago. There is no evidence that the Government's proposals will change that. For one thing, it seems unlikely that NAMA will be a speedy resolution because it will get tied up in the courts. In the meantime, small businesses will remain starved of funds and unable to get the money they need to keep going.

The public can help with the recovery only if they have confidence in the system. The Irish Congress of Trade Unions suggested that a national recovery bond as part of a social solidarity pact would be an innovative way for the Government to raise money, but people would buy into a new plan only if they felt it was fair. If we accept the model the Labour Party proposes, we will have public scrutiny of what goes on in the banks and the transparency we need. People will have confidence, the pension funds will have confidence, and the ordinary individual who still has money but does not want to put it in the banks will have the confidence to invest it in a national recovery bond.

In the area of health, a report has suggested that all the maternity hospitals in Dublin need to be rebuilt in the grounds of acute hospitals. Indeed, the one in my city of Limerick is in a similar situation. That is an example of how we could provide real hope for the future, because we could use national recovery bonds to build the maternity hospitals. There are models for that. Ken Livingstone was on the radio this morning talking about using a bond for the transport system in London, and the people of Texas used a bond to build the Parkland Memorial Hospital there. I raise the issue because we need to ensure that people have confidence in the system. We only have to see the news or listen to people on the doorsteps to know they do not have confidence at present. People are asking why the developers who made millions do not have to pay back these huge loans. It might have been only their last bit of speculation that got caught in the toxic loans. People are asking whether there is any way of going after them and how we know what is happening in the banks.

We cannot restore confidence if we go down the route the Government is proposing. The Labour Party's model makes sense. Deputy Quinn explained very well how it would operate in practice. If we take that route, the Irish people will regain their confidence in the banks, and so will the international markets.

Deputy Joe Costello

I thank Deputy Burton for tabling this Private Members' motion. I am delighted to have an opportunity to say a few words on it. The Government's approach to the economic crisis has a fatal flaw. It is obsessed by the need to bail out the banks without due consideration for the real economy, which comprises investment, business and employment. The Government has neglected those areas. The private banking system is a major cause of the crisis and it is still mired in undefined and virtually undefinable debt. The €450 million unconditional guarantee in September 2008 was followed by the €7 billion recapitalisation of AIB and Bank of Ireland. The last tranche of recapitalisation of AIB took place today after a hectic, egg-throwing AGM of angry shareholders who have already pretty much lost their shirts. AIB already has the begging bowl out for more and it is now clear that its bad debts are far greater than it had informed the Government. The latest generous offer of taxpayers' money by the Government to the private banking system is a massive buyout of the banks' bad debts at an estimated cost of €90 billion. We are still awaiting the legislation establishing NAMA to see the full extent of the liability on the State and the burden on this and future generations of Irish people.

The effect of this eight-month long banking bailout is that the Government has lurched from crisis to crisis, committing the taxpayer to virtually unlimited financial exposure without providing any benefits to the hard-pressed business and employment sector. The banks have one major function in the economy, namely, to lend money to citizens and to businesses. After eight months of shoring up by the Government, the banks are not doing the one thing the country needs them to do — they have simply stopped lending. The Government policy has failed, which it should recognise. It is in the process of saving the banks — that goes without question — but instead of the banks then trying to save the economy, they are now holding the country and the economy to ransom.

There has to be another way, which there is. First, we must consider the situation of the business community. The survey conducted by the Irish Small and Medium Enterprises Association, which has been referred to by a number of speakers and which was published today, is a stark verdict on the banks' failure to engage with the Irish economy and business. Some 83% of the 400 established businesses surveyed by ISME stated that it was now harder to access credit from Irish banks than it had been less than three months ago. The previous survey was conducted in February and, incredibly, more than half the businesses surveyed had been more than ten years with the same bank. They had a proven track record and were clearly not fly-by-night businesses. This is the backbone of the Irish economy. Some 58% of those businesses had applied for loan facilities and were refused by the banks. This is a substantial increase of 10% over the past two to three months.

Not only has the credit crunch worsened but the banks are effectively not open for business. The credit tap to business has been turned off by the banks. The banks' actions are even more perverse. On 3 October, the European Union saw the difficulties that national banks would have in providing the same level of credit to businesses in the 27 member states as before. The EU recognised that SMEs were the lifeblood of the 27 economies and, thus, it decided eight months ago to put together a fund of €30 billion through the European Investment Bank to be drawn down by the national banks of the 27 member states and distributed specifically to small and medium businesses. This was to ensure a steady flow of credit and the banks would not have to rely exclusively on their own reserves.

To date, the Irish banks have only drawn down €350 million — €50 million by the Bank of Scotland and €100 million each by AIB, Bank of Ireland and Ulster Bank. I do not believe a single penny of that money has actually been distributed. ISME believes that none of the money that was specifically made available by the EU to allow a credit flow to small and medium enterprises is being made available by the various banks because they are not getting it on the lucrative terms they received during the boom.

In conclusion, the manner in which the Government has addressed the economic crisis by bailing out the banks is wrong. It is time for the Government to see the virtue in the Labour Party's proposals.

Deputy Joanna Tuffy

The Government's policies of the past 12 years brought us to the economic and banking crisis of last September, which is much worse than is being experienced in other countries. Alternative approaches were available during that 12-year period, many of which were voiced by the Labour Party. For example, in regard to the property bubble, as far back as 1999 the Labour Party was proposing an alternative approach to the price of housing. Deputy Eamon Gilmore, who was then our spokesperson on the environment, initiated a Labour Party housing commission which in 1999 published the report, Housing: A New Approach, containing many proposals dealing with affordable housing, land speculation, people's rights to housing and so forth.

The Labour Party's voice was not the only one. There were other alternative voices and many warnings to the Government. It was commonly said in recent years that we needed to build 50,000 houses a year yet for some years the Government allowed for 90,000 houses, which was totally unsustainable. The All-Party Committee on the Constitution, on which I served, recommended, for example, the implementation of the Kenny report and stated there was no legal or constitutional obstruction to the Government doing this. However, the Government let land speculation and the housing bubble continue despite the warnings.

When the Government took its decision last September, it compounded the economic crisis by guaranteeing all bank loans, including the most reckless, although there were alternatives to that decision. The Labour Party voiced alternative points of view and media commentators and economists gave an alternative approach but all of this was ignored by the Government. The Government decision, which was very significant, has led us to where we are now. The taxpayers, those we represent, are now burdened with all of the debts of the banks, including the most reckless. While we have no alternative but to deal with this situation, and the Government has proposed the setting up of NAMA, all of the control is still in the hands of the banks.

Deputy Mary White said earlier that we need to do this right but the Government has got it wrong to date and is still not listening to the alternative point of view. Perhaps it is time it began to listen to the proposals of the Labour Party and some economists. It should not listen to those who were saying everything was fine when the property bubble was growing in an unsustainable way or those who spoke about a soft landing and equilibrium, none of which has happened. The Government needs to take different advice and stop listening to the vested interests and the voices of the few who just want their interests protected.

As proposed by the Labour Party, nationalisation at this late stage will give the State control over the banks on behalf of the stakeholders, who are the taxpayers — the people we represent. Through the Government, they have taken on the burden of all the debts of the banks. We have proposed a banking commission to ensure that whatever happens to the banks when they are nationalised will be done in the common interest, and that the best people will be put in place to do the job.

The Government's reluctance to do this can only mean it is still in the same mindset it has been in for the past 12 years and which it was in back in September when it recklessly guaranteed all of the bad debts of the banks. It is as if the banks know better and the Government will do what they want because it does not want to intervene in the private arena. Deputy Beverley Flynn, a former banker, said that State ownership is a last resort but surely we are at the stage of last resort. Deputy Michael Moynihan said the banks are not lending but surely that is an argument for the State to take control. Deputy Flynn said the Government was protecting the taxpayer when it took the decision to guarantee all the debts back in September but that is patently not the case because guaranteeing all of the toxic debts could mean that this economy will not get out of recession for many years to come.

This is part of the same Government mindset that created all of the mistakes in the budget. The Government will not learn from what is being done in other countries and what the Labour Party is proposing in terms of stimulating the economy to get it moving again and creating and saving jobs. Most of all, if we want to get the banks right, we need to do what the Labour Party proposes and nationalise the banks at this stage.

Deputy Kathleen Lynch

I suppose the fact that a woman was jailed for two years today made national headlines because it was such an unusual occurrence. What was also unusual about this case was that she got this sentence for robbing an old age pensioner. The Minister of State probably saw this news because it happened in our county of Cork. Most people will agree that if people carry out despicable acts on the elderly, they deserve to be punished.

The amazing thing about this is that an entire roomful of elderly old age pensioners were robbed today, not by way of a car smash, but with a fountain pen in AIB headquarters, but nobody was trotted out in handcuffs or jailed as a result. Thousands of people were robbed, elderly people who trusted what was a blue chip institution and put their money into the bank. They did what the Government advised to provide for themselves in their old age and ensure they would have a pension. However, they have been told one after the other that there is no money for them and their pensions are gone. The woman in Cork got two years, but the bankers are going home, having barely escaped being hit by an egg. Where is the justice in that?

Sometimes the question is asked why people are so angry. They are angry for many reasons. They are angry that no one has been held to account, no one has been brought out in handcuffs and no one has been brought before the courts. They are angry that those who robbed them did as Bob Dylan said, robbed them with a fountain pen. None of them has been brought before the courts. Saying sorry is not good enough.

People are equally angry that the Government has the opportunity to put in place a system that will serve the people, but it is refusing to take that opportunity. We have the opportunity to put in place an entirely new system, but we are refusing to do it. Young and not so young couples who have traded up their houses are worried that they could lose their homes in the coming months because they cannot pay their mortgages. These are the people who have lost their jobs. People who have retained their jobs are worried because they are locked into fixed interest rate mortgages which they cannot afford because the Government has decided to take money from them as it can no longer afford to pay the country's debts.

If we are to bail out the banks, why do we not tell them they must not take houses from people but must allow them to change to a variable mortgage without threatening to impose a colossal penalty on them? Why do we not insist on this? Why do we not demand of the banks what we would like for our citizens? Why do we not insist bankers behave like human beings and treat people properly? After all, it is the citizens who are bailing out the bankers. Why do we not demand they treat people properly? Why do we not encourage people to go to what is now the people's bank to look for loans? We are not doing that because the Government, as Deputy Beverley Flynn has just said — who would know better — said that is a last resort.

We have reached the last resort and we are bailing out the banks. The people are very angry that bankers are not getting two years in jail for robbing them with a fountain pen, like the woman in Cork deservedly got today. Why are we not demanding that people are brought to justice?

Minister of State at the Department of Enterprise, Trade and Employment (Deputy Billy Kelleher)

I welcome the opportunity to speak on this issue. Earlier today some speakers said they had not had an opportunity to speak on the banking issue, despite the fact that we have had several debates on the broader economy and a number of Finance Bills in the context of the budget in October 2009 and the recent supplementary budget, and again now. Some of the commentary on the issue is welcome, but some of it is just soundbite politics.

When we are dealing with such a serious issue as the banking crisis, it is important to acknowledge that not every part of the difficulty is a result of the internal dynamics of this economy. I agree we were over-reliant on the construction sector. Everybody acknowledges that, but nobody on any side of the House would have foreseen the drastic change in circumstances in the world economy that has transpired. I mentioned last night that before the 2007 general election all the manifestoes of the various political parties indicated growth rates of 4% for the years 2008, 2009 and beyond. Nobody indicated in those manifestoes there would be a major downturn. All the forecasts were that there would be buoyancy in tax receipts. Nobody can dispute that.

It is even more important to point out what transpired as a result of a confluence or combination of factors. We had the problems of the sub-prime market and the collapse of Lehman Brothers in the United States. This had a ripple effect across Europe. With all due respects to Members, we cannot blame the Government's policies over the past 12 years for the financial meltdown of institutions throughout the world, as has been indicated here. It has been suggested that all the ills of the world were caused by policies pursued by this Government over the past 12 years.

Deputy Ruairí Quinn

It is the Government's proposed solutions that worry us.

Deputy Billy Kelleher

We face a serious situation and the Government has taken decisive action. I am aware people here have been calling for credit institutions to free up credit for first-time buyers who have secure jobs and deposits saved and for small and medium-sized businesses that have business plans that stack up. As I mentioned last night, we have a new relationship with banks through the State guarantee with the people.

Deputy Joe Costello

Why are people not getting credit?

Deputy Billy Kelleher

I urge banks to look favourably at ensuring a credit flow.

Deputy Joe Costello

The guarantee has been in place for seven months.

Deputy Billy Kelleher

The party that proposed nationalisation here tonight refused categorically on 29 September, when our banking system was on the verge of collapse, to come in and support the bank guarantee that was so important. Everybody here knows well it was important to support the major banking institutions on 29 September, but the Labour Party did little other than criticise and undermine the process.

Deputy Joe Costello

Where is the money? The banks are not doing anything. That is what we are on about.

Deputy Billy Kelleher

We now get the soundbite politics of "an bord bailout" bailing out the banks. If we do not have banking systems that are capable of working, going to the wholesale markets and borrowing and lending money, our economy will stagnate further and will suffer and we will have further haemorrhaging of jobs. That is what we are about in this House. The nationalisation of the banks is the last resort and if we can do anything to avoid that, we should.

Deputy Ruairí Quinn

It is the method of dealing with the issue we criticise.

Deputy Billy Kelleher

The NAMA proposal is also being looked at by other countries. We are not alone in having impaired assets in our banks. The Germans have had that difficulty, as have the French and the Spanish. NAMA is a proposal that is gaining favour not only in Ireland but outside it.

The commentary on NAMA is favourable. It is acknowledged that the Government is doing everything possible to ensure we have a stable financial banking system that can go to the wholesale markets, access credit and allow credit to flow into the broader economy and to home mortgage applicants. I urge Members to support the Government's proposals and not use populist soundbite politics. I understand why this happens, but in a time of crisis, we should have serious debate on the issues rather than flippant throwaway remarks such as "an bord bailout" or saying we are taxing people to give to the bankers and developers. There are charges on the banks for capitalisation and charges on them for the guarantee. NAMA will take the impaired assets from the banks and allow them to trade in a manner that will assist the broader economy.

I note that those proposing nationalisation are standing on both sides of the fence and are relying on shareholders being reimbursed at a later stage of nationalisation. They are trying to play all sides by proposing setting up a trust so that shareholders can come back in a few years' time. That is the each way bet.

I make this comment in the broader context of flippant political points. Commentary in this House is picked up on international markets. I was in London two weeks ago where it was remarked by many people there that debates here are watched ——

Deputy Ruairí Quinn

That is rich coming from Fianna Fáíl.

Deputy Billy Kelleher

——and whether our words carry weight here, they are listened to outside the House.

Deputy Joan Burton

There is one question that haunts this debate and no Minister has attempted to answer it so far. How can policy remain dominated by one purpose to the exclusion of all else, that is, that no bank should be allowed to fail and yet none should be properly nationalised? That question was answered by this Government last September in its ill-advised blanket guarantee. Unfortunately, neither Fine Gael nor Sinn Féin gave that guarantee the kind of scrutiny or objection that would perhaps have made Fianna Fáil think twice.

Deputy Billy Kelleher

If we were depending on the Labour Party's scheme they would be gone by this stage.

Deputy Joan Burton

Within hours it was followed by the actions of vested financial interests who saw this as a signal to carry on with business as usual, with a Government licence to back them up. There was Mr. Fingleton junior's notorious e-mail to UK depositors drumming up extra business on foot of the State guarantee. Then there was the extraordinary set of deals to manage the year-end balance sheet of Anglo Irish Bank with huge overnight transfers from another institution, Irish Nationwide, in the face of manifest failure and support from another institution. No bank can fail, was the mantra of the Minister for Finance, Deputy Brian Lenihan but he let down his guard and failed to insist on new practices, new management and a new bank culture.

Only nationalisation could have achieved that but he ran away from that option and he is still running away in denial from it. The Fianna Fáil–Green Party Government's velvet glove approach with the banks is deeply flawed and has not worked, and will not work, now or ever. Banks have become too used to getting their own way over the past decade. This can be changed only by a strong arm approach that will absolutely insist on both regime change at the top and behaviour change in their approach to corporate governance and lending policies.

The banks covered by the guarantee have teetered on the edge of bankruptcy for some time now. As institutions they have failed utterly. They have failed the businesses, the homeowners, and their own workers who have given them loyal service. There is no escaping that plain if rather inconvenient truth. Their predicament is evident from the sorry state of AIB and the continuing but reluctant admissions from it of the calamitous state of that bank's balance sheet. Sooner or later these colossal sums must be written off, the banking system must be restructured entirely and revert to its core job of accepting deposits and lending against houses and business plans, particularly for small and medium sized enterprises which rely on our banks. The Americans call this style of banking — taking deposits, lending for houses and ordinary businesses — vanilla banking, just like vanilla ice cream without any exotic flavours added.

Last September, the entire house of cards collapsed and confidence evaporated Every bank's long-term security was called into question. From that moment banks ceased to be the pillars of the economy. They became bankrupt businesses and like all other bankrupt businesses their primary interest was in hustling for money to pay their debts. Their sole claim on public aid was that they held deposits and mortgages, and were still in a position to lend, if the Government would look after them. The Government gave them a disastrous guarantee because it naïvely took at face value their assurance that they could still offer lines of credit.

It was a lie then and it is still a lie. Had the Government nationalised them on day one, on 30 September, it could have secured those deposits and ring-fenced lending to businesses and individuals, as well as protecting the shareholders' interests and those of the small savers who patriotically put their money into those shares. It would draw tears from a stone to look at the small shareholders tonight who thought that they were doing the patriotic thing and saving for their retirements. How they were fooled.

At the same time the Government could have isolated toxic debt into a managed "administration" or quarantine. Above all that would have given it control over the massive sums it was about to spend. Instead, we have heard Minister after Minister uttering pious hopes that bank directors would use their giant subsidies to lend to businesses and thus kick-start recovery, as opposed to merely underpinning their balance sheets. With nationalisation the Government would have had power to implement its declared policy.

The €7 billion of public money for AIB and Bank of Ireland was supposedly for lending. That is what the Government told us but AIB received €3.5 billion and has just announced that its debt write-off this year is €4.3 billion so it is actually a further €800 million short after the Government claimed that recapitalisation would fix it. How naïve can Ministers be and how reckless with taxpayers' money? Is there no end to their fecklessness? If one gives money to a chronic gambler he will not use it to change his ways. He will head straight to the nearest Paddy Power betting shop or poker school.

The Government has borne all of the costs of nationalisation and gained none of the advantages. That is the Labour Party's point. What was the point of giving all that money to the banks when they were never going to lend it to business? The economy needs raw spending power. Money must flow through the economic bloodstream again. That is the way to re-open shops, re-establish cash-flow, employ staff, make it worthwhile to borrow from banks and for the banks to lend.

The Government is planning to pour tens of thousands of euro for every man, woman and child in Ireland into a failed banking system, not just to pay Fingers Fingleton's obscene pension but to pay the gambling debts that he incurred in his recent banking adventures as well. The Minister claims that the days of crony capitalism are over but the public has a right to be sceptical of this claim. We have experienced for years the corrosive effects of planning corruption and the Government is largely responsible for the tax incentives that facilitated the property bubble. That corruption was so overt that public opinion is right to be wary of expensive quick-fix solutions coming from the source that created the problems.

Political influence over decisions comes in many forms. Crony capitalism may not be as overt as before but it has not gone away, it is still very much with us. Its influence can be seen in the set of attitudes that run through the National Asset Management Agency plan. What is good for the failed banks and the failed developers is deemed to be good for Ireland or so, at least, the Government appears to believe. The Minister said it bluntly himself when he described the NAMA as a bailout of the Irish economy. In other words he identifies the interests of the bankers and the developers with those of the State.

That set of attitudes and the light touch — "It will be alright on the night" — approach to regulation has failed the country at a crucial time. Why should the public put its trust now in a new system designed to suit the same people? Public trust is a fragile thing and has been sorely tested in recent months. The September guarantee was supposed to be the silver bullet and was sold to the public at the time as such. It failed in its express purpose. Now this new silver bullet is on offer but the public is more cautious. The Minister for Finance faces a brutal public backlash if he proceeds with the NAMA in the manner he and Dr. Bacon have proposed. There is a huge loathing at the prospect of yet another bailout for the golden circle of Fianna Fáil's developers and the bankers.

The Labour Party has three problems with the Bacon proposal. How are the troubled assets to be priced in a transparent manner that commands public confidence?

Deputy Ruairí Quinn

Exactly.

Deputy Joan Burton

Our second problem is with the funding of the asset purchases and the year-by-year cost of the associated public debts. What are they? The third issue is the absence of any commitment to public accountability and oversight such as the procedures put in place in the USA's troubled assets relief programme, TARP, or in the programmes of Sweden and other countries which did nationalise their banks.

The first of these is the most important by far. The greater the write-down in the value of the banks' troubled assets, the lower the price paid by NAMA on behalf of taxpayers. However, in that case, the losses that the bank will have to absorb will be greater. Obviously the banks will want the write-down of their loan books to be as limited as possible because a more substantial write-down will expose them to the risk of insolvency. As I stated, €3.5 billion would vanish on foot of the €4.3 billion bad debt write-down by AIB. More money will be wasted unless we proceed properly.

Some Dublin stockbrokers have suggested a haircut of approximately 15% to 20%. That would imply a bill of over €50 billion for the taxpayer and would involve an immediate doubling of the national debt by that amount. If the scope of the write-down is limited to the sole purpose of preserving the cosmetic health of the banks' balance sheets, the decision will have been motivated by political rather than commercial reasons.

Deputy Ruairí Quinn

Hear, hear.

Deputy Joan Burton

This is a truly appalling vista. A 15% haircut is a joke and so are all the dodgy notions about fair value and intrinsic value that we hear about from the vested interests who want to get the State to pay over the odds for their reckless purchases of development lands. Some of the fields outside towns around the country are again being considered as agricultural land because they are no longer worth more than their agricultural value. Perhaps they are worth 10% of their value on the banks' balance sheets.

Consider Ballsbridge in Dublin 4, the prime centre of inflated land prices during the boom. Last week the national newspapers carried advertisements for two buildings on sale in the AIB Bank Centre. They were discounted by a minimum of 44%. I refer to the best property area in Ireland, which has a bank as a tenant. Many less favourable sites are now worth less than 20% of their earlier sale prices. If NAMA entertains any idea of buying such properties at a discount of a mere 15% to 20%, it will cause taxpayer outrage and rightly so.

The main financial institutions must become credibly solvent. That is why the Labour Party is emphasising the nationalisation process and, ultimately, the return of the banks to solvency. The party's view is that the only realistic way to get to grips with this is to nationalise the banks. That still involves a State takeover of the toxic debts and the property assets so that a specialist agency with a professional approach to the liquidation of toxic debts could ultimately manage or sell these assets. However, it avoids any immediate requirement to place a value on them because the transfer would simply be from one State agency to another. Furthermore, no legal problem would arise in this regard.

The act of nationalisation does not in itself dispose of the issue of how to handle the losses, nor does it diminish the scale of capital that the State will have to find to restore the nationalised institutions to a state of commercial health that will allow them to be sold off as the means of recovering the cost that the taxpayer will have to meet for years. Mr. Alan Ahearne correctly described that as the upside for taxpayers and businesses in the economy. It is hard to avoid the conclusion that the primary motivation of the current NAMA proposal is to avoid the nationalisation route at all costs. That is flawed logic based on political calculations and an excessive wish to return to business as usual in as short a time as possible.

That great observer of Irish politics, John Healy, who is alas no longer with us, made a famous comment about the economic failures of his day. He said, "Nobody shouted stop". It is time to shout "Stop". The time is now, the place is here and I ask the House to vote for this motion. The nationalisation proposal is a response to the failure of Irish capitalism and, as the Minister said, the concomitant failure of global capitalism, globalisation and deregulation. That there is no alternative demonstrates the failure of TINA, the Washington consensus, Mrs. Thatcher and Mr. Reagan, and the failure of Fianna Fáil economics and "Cowenomics". As Deputy Seán Ardagh stated today, "Cowenomics" is very close to Fianna Fáil "Enronomics". This is what we want to say goodbye to. We wish we could say goodbye to all the Members on the other side of the House also but the voters will have their chance on 5 June. Please vote for this motion.

Amendment put.

The Dáil divided: Tá, 73; Níl, 59.

Tá

• Ahern, Dermot.
• Ahern, Michael.
• Ahern, Noel.
• Andrews, Barry.
• Andrews, Chris.
• Ardagh, Seán.
• Aylward, Bobby.
• Blaney, Niall.
• Brady, Áine.
• Brady, Cyprian.
• Brady, Johnny.
• Browne, John.
• Byrne, Thomas.
• Calleary, Dara.
• Carey, Pat.
• Collins, Niall.
• Conlon, Margaret.
• Connick, Seán.
• Coughlan, Mary.
• Cregan, John.
• Cuffe, Ciarán.
• Curran, John.
• Devins, Jimmy.
• Dooley, Timmy.
• Finneran, Michael.
• Fitzpatrick, Michael.
• Fleming, Seán.
• Flynn, Beverley.
• Gormley, John.
• Grealish, Noel.
• Hanafin, Mary.
• Harney, Mary.
• Haughey, Seán.
• Healy-Rae, Jackie.
• Hoctor, Máire.
• Kelleher, Billy.
• Kelly, Peter.
• Kenneally, Brendan.
• Kennedy, Michael.
• Kirk, Seamus.
• Kitt, Michael P.
• Kitt, Tom.
• Lenihan, Brian.
• Lenihan, Conor.
• Lowry, Michael.
• McEllistrim, Thomas.
• McGrath, Mattie.
• McGrath, Michael.
• McGuinness, John.
• Mansergh, Martin.
• Moloney, John.
• Moynihan, Michael.
• Mulcahy, Michael.
• Nolan, M. J.
• Ó Cuív, Éamon.
• Ó Fearghaíl, Seán.
• O’Brien, Darragh.
• O’Connor, Charlie.
• O’Flynn, Noel.
• O’Hanlon, Rory.
• O’Keeffe, Batt.
• O’Keeffe, Edward.
• O’Rourke, Mary.
• O’Sullivan, Christy.
• Power, Seán.
• Ryan, Eamon.
• Sargent, Trevor.
• Scanlon, Eamon.
• Smith, Brendan.
• Treacy, Noel.
• Wallace, Mary.
• White, Mary Alexandra.
• Woods, Michael.

Níl

• Bannon, James.
• Barrett, Seán.
• Behan, Joe.
• Breen, Pat.
• Broughan, Thomas P.
• Burton, Joan.
• Byrne, Catherine.
• Carey, Joe.
• Clune, Deirdre.
• Connaughton, Paul.
• Coonan, Noel J.
• Costello, Joe.
• Crawford, Seymour.
• Creighton, Lucinda.
• Deasy, John.
• Deenihan, Jimmy.
• Feighan, Frank.
• Ferris, Martin.
• Flanagan, Charles.
• Flanagan, Terence.
• Gilmore, Eamon.
• Hayes, Brian.
• Hayes, Tom.
• Higgins, Michael D.
• Hogan, Phil.
• Howlin, Brendan.
• Lynch, Ciarán.
• Lynch, Kathleen.
• McCormack, Pádraic.
• McEntee, Shane.
• McGinley, Dinny.
• McGrath, Finian.
• McHugh, Joe.
• McManus, Liz.
• Mitchell, Olivia.
• Morgan, Arthur.
• Naughten, Denis.
• Neville, Dan.
• Ó Caoláin, Caoimhghín.
• Ó Snodaigh, Aengus.
• O’Donnell, Kieran.
• O’Keeffe, Jim.
• O’Shea, Brian.
• O’Sullivan, Jan.
• Penrose, Willie.
• Perry, John.
• Quinn, Ruairí.
• Rabbitte, Pat.
• Reilly, James.
• Ring, Michael.
• Sheehan, P. J.
• Sherlock, Seán.
• Shortall, Róisín.
• Stagg, Emmet.
• Stanton, David.
• Tuffy, Joanna.
• Upton, Mary.
• Varadkar, Leo.
• Wall, Jack.

Tellers: Tá, Deputies Pat Carey and John Cregan; Níl, Deputies Emmet Stagg and David Stanton.

Amendment declared lost.

Question put: "That the motion, as amended, be agreed to."

The Dáil divided: Tá, 72; Níl, 59.

Tá

• Ahern, Dermot.
• Ahern, Michael.
• Ahern, Noel.
• Andrews, Barry.
• Andrews, Chris.
• Ardagh, Seán.
• Aylward, Bobby.
• Blaney, Niall.
• Brady, Áine.
• Brady, Cyprian.
• Brady, Johnny.
• Browne, John.
• Byrne, Thomas.
• Calleary, Dara.
• Carey, Pat.
• Collins, Niall.
• Conlon, Margaret.
• Connick, Seán.
• Coughlan, Mary.
• Cregan, John.
• Cuffe, Ciarán.
• Curran, John.
• Devins, Jimmy.
• Dooley, Timmy.
• Finneran, Michael.
• Fitzpatrick, Michael.
• Fleming, Seán.
• Flynn, Beverley.
• Gormley, John.
• Grealish, Noel.
• Hanafin, Mary.
• Harney, Mary.
• Haughey, Seán.
• Healy-Rae, Jackie.
• Hoctor, Máire.
• Kelleher, Billy.
• Kelly, Peter.
• Kenneally, Brendan.
• Kennedy, Michael.
• Kirk, Seamus.
• Kitt, Michael P.
• Kitt, Tom.
• Lenihan, Brian.
• Lenihan, Conor.
• McEllistrim, Thomas.
• McGrath, Mattie.
• McGrath, Michael.
• McGuinness, John.
• Mansergh, Martin.
• Moloney, John.
• Moynihan, Michael.
• Mulcahy, Michael.
• Nolan, M. J.
• Ó Cuív, Éamon.
• Ó Fearghaíl, Seán.
• O’Brien, Darragh.
• O’Connor, Charlie.
• O’Flynn, Noel.
• O’Hanlon, Rory.
• O’Keeffe, Batt.
• O’Keeffe, Edward.
• O’Rourke, Mary.
• O’Sullivan, Christy.
• Power, Seán.
• Ryan, Eamon.
• Sargent, Trevor.
• Scanlon, Eamon.
• Smith, Brendan.
• Treacy, Noel.
• Wallace, Mary.
• White, Mary Alexandra.
• Woods, Michael.

Níl

• Bannon, James.
• Barrett, Seán.
• Behan, Joe.
• Breen, Pat.
• Broughan, Thomas P.
• Burton, Joan.
• Byrne, Catherine.
• Carey, Joe.
• Clune, Deirdre.
• Connaughton, Paul.
• Coonan, Noel J.
• Costello, Joe.
• Crawford, Seymour.
• Creighton, Lucinda.
• Deasy, John.
• Deenihan, Jimmy.
• Feighan, Frank.
• Ferris, Martin.
• Flanagan, Charles.
• Flanagan, Terence.
• Gilmore, Eamon.
• Hayes, Brian.
• Hayes, Tom.
• Higgins, Michael D.
• Hogan, Phil.
• Howlin, Brendan.
• Lynch, Ciarán.
• Lynch, Kathleen.
• McCormack, Pádraic.
• McEntee, Shane.
• McGinley, Dinny.
• McGrath, Finian.
• McHugh, Joe.
• McManus, Liz.
• Mitchell, Olivia.
• Morgan, Arthur.
• Naughten, Denis.
• Neville, Dan.
• Ó Caoláin, Caoimhghín.
• Ó Snodaigh, Aengus.
• O’Donnell, Kieran.
• O’Keeffe, Jim.
• O’Shea, Brian.
• O’Sullivan, Jan.
• Penrose, Willie.
• Perry, John.
• Quinn, Ruairí.
• Rabbitte, Pat.
• Reilly, James.
• Ring, Michael.
• Sheehan, P. J.
• Sherlock, Seán.
• Shortall, Róisín.
• Stagg, Emmet.
• Stanton, David.
• Tuffy, Joanna.
• Upton, Mary.
• Varadkar, Leo.
• Wall, Jack.

Tellers: Tá, Deputies Pat Carey and John Cregan; Níl, Deputies Emmet Stagg and David Stanton.

Question declared carried.