Through NAMA, the Government on behalf of the taxpayer has accepted the responsibility to pick up the tab for the banks and the many developers who gambled on the property bubble and lost. NAMA is just the latest reckless proposal from a Government with a track record of wasteful spending. From PPARS to electronic voting and FÁS, which is currently under discussion in the House and in the PAC, not to mention ministerial expenses, the Government has treated the public purse with disdain. A decade of reckless Government policies has weakened Ireland to the extent that the global economic crisis is being felt more severely here than almost anywhere else.
What makes NAMA different from what has gone before is not that it is reckless or potentially wasteful, it is the scale of taxpayers' money that the Government is willing to risk to bail out careless, greedy and reckless activities. The NAMA scheme is a bailout that allows the Government overpay for the assets it purchases on behalf of the taxpayer. It will pay €54 billion for loans worth an estimated €47 billion. The taxpayer will overpay the banks by at least €7 billion and possibly much more. As previous speakers indicated, property values are still falling and nobody knows when or where they will bottom out. Many of the loans that will be taken over by NAMA involve half-built buildings and development land that has now been reduced to agricultural value. Nobody knows where things stand yet the Government proposes to overpay for properties based on its estimate of the current market value. There is no current market value for some of the properties involved.
To put the matter in perspective, the €54 billion cost of NAMA amounts to a contribution of €12,273 from every man, woman and child in the country to help the banks and developers with their property gambling problems. The sum of €54 billion could pay for 208 Croke Parks, 72 port tunnels or 11 metros. In the 36 years since Ireland joined the EEC in 1973 it has received €61 billion in transfer payments from Europe.
The scale of the sums of money involved in the NAMA scheme has helped confuse almost everyone but the system itself is pretty straightforward when explained in everyday terms. Let us imagine it in terms of purchasing a house where an agent has been employed by a purchaser. The agent has identified a house which at the height of the property boom was valued at €770,000. In today's falling market the best estimate is that it is worth €470,000 and probably less. The agent offer the owners €540,000 for the house, substantially above the current market value. The agent made this offer for two reasons; he or she knows the current owners are in financial difficulty and want to help them out and, he or she believes that house prices will increase in the future. The results of the transaction are that the owners of the house cannot believe their luck and jump at the opportunity to sell the house for an amount well above what it is worth. The purchaser gets a house which is worth far less than what they have paid for it. The agent has put the interests of the owners ahead of his or her client. In the case of NAMA the ripped-off purchaser is the Irish taxpayer. The delighted owners are the bankers and developers who gambled on the property market and lost but are now being bailed out. The untrustworthy agents are the Ministers who have put the interests of bankers and developers ahead of their employers, the Irish people.
The Government's NAMA proposal has the potential to financially cripple the country. It unfairly asks the taxpayer to take responsibility for the reckless actions of others. NAMA is not guaranteed to get credit flowing. By the Government's own admission NAMA will over-pay the banks by €7 billion. The vast majority of the loans to be taken on by NAMA are for land or development projects whose values may have fallen by well in excess of the Minister for Finance's estimates. In some cases land was bought at hugely inflated prices because it had development potential but now it only has potential as agricultural land. In those cases such land could be worth only 10% or 20% of the NAMA loan value.
Most of the loans, perhaps more than 60% of them, which NAMA will own are non-performing loans. In the current climate it is impossible to see how the developers who owe that money will be able to repay it. What the Government does about those loans and developers will become an issue almost immediately. For the scheme to work the new agency must be more effective at recovering loans from the developers than the banks have been. We will be dependent on a Fianna Fáil-led Government to ensure a State agency actively pursues people who just over a year ago were regular supporters of the Government. In November 2008 an IMF report found that government-owned assets management companies were largely ineffective in resolving distressed assets, largely due to political and legal constraints. Why are we expecting things in Ireland under this Government to be any different?
The Government has failed to fully consider the impact of interest rate increases upon NAMA. If over the next ten years the ECB rate, currently at 1%, averages the 3.8% expected by financial markets the average funding cost of NAMA will be 4.3%. Such an increase would cost the taxpayer an extra €15 billion. The Green Party promised that its Ministers would fight at the Cabinet table to ensure a fair system of risk sharing to protect the taxpayer. We see from the Minister for Finance's proposals that the risk sharing element will be a mere 5% — a fig leaf figure to cover any Green blushes. A 5% risk sharing element in NAMA is next to nothing, which is roughly about the amount of influence Green Ministers have at the Cabinet table.
The most important issue at this stage for the economy is that we get credit flowing. Everyone across the House appears to be in agreement on that point. Unemployment is at record levels. Available credit is needed to protect existing jobs and create new ones. The NAMA scheme is based on the Government's belief that the transfer of this vast amount of wealth from the taxpayer to the banks will encourage those banks to start lending again. We have seen no guarantee that this will happen. The banks are as likely to use this money to pay off their own liabilities to other banks and the international money market as they are to provide extra lending to help economic recovery. Each bank's number one priority is not the recovery of the economy but its own survival. Where the best interests of the Irish economy come into conflict with the best interests of the banks there will only ever be one winner under the NAMA scheme. The €36 billion from NAMA that will be paid to Anglo Irish Bank and Irish Nationwide will be of little benefit to the economy and may not result in even a single new loan being issued. NAMA may provide banks with the funds to allow them to issue loans but it does nothing to guarantee they will issue new loans.
Yesterday, the Oireachtas Joint Committee on Enterprise, Trade and Employment heard a presentation from the Electrical Manufacturers and Distributors Association of Ireland, EMDA, which is connected to the construction industry. It outlined the difficulties its members are currently facing. It stated:
On the purchasing side, the perception of Ireland is of great importance. With our reputation suffering severely over the past 12 to 18 months, some European suppliers are no longer extending credit facilities to Irish importers and are demanding to be paid up-front, often despite decades of fruitful business relationships. The diminishing Irish reputation, especially where it is connected to the building sector, also has a negative effect on the availability of credit insurance.
In one case a company had its credit insurance reduced from €1 million to €100,000. That is one example of how small and medium business enterprises throughout the country are suffering. We hear such stories frequently now. Overdraft facilities are not available to businesses, credit facilities have been reduced and the cost of overdrafts has been increased. There is no guarantee that NAMA will get credit flowing into the economy.
There is an alternative, namely Fine Gael's proposal for the establishment of a good bank — a national recovery bank — funded by the European Central Bank. In October 2008 the French Government established a similar state guaranteed wholesale bank to provide funding to French businesses allowing them to protect existing jobs and create new jobs. That approach has many advantages as it would get credit flowing immediately, inject new lending into the economy without delay, and help to stimulate job creation. Instead of buying toxic development loans at a highly uncertain value it would focus on high quality loans directly linked to new jobs and economic recovery. Such a bank could be open for business in a matter of weeks. It would be less of a risk for the taxpayer. An investment of €2 billion would leverage €20 billion of new lending funded by the ECB. That would ensure a functioning banking system that would deliver credit to struggling businesses and households.
Despite what the Government would like everyone to believe NAMA is not the only option. It is a high risk gamble with taxpayers' money, a bailout for those bankers and developers who were reckless and greedy. Despite promises, there is no guarantee of credit flowing to the economy, which is desperately needed if we are to begin the long road to recovery. The Government's proposal offers no guarantee that this will happen.
