Wednesday, 14 October 2009
Dáil Eireann Debate
“[G]overnment of the people, by the people, for the people”— these are the immortal words of Abraham Lincoln. What the NAMA legislation represents is government of the developers, by Fianna Fáil and the Greens, for the banks. It gives me no pleasure whatsoever to contribute to the debate on this legislation. The country as a whole has been devalued by the despicable behaviour of a few.
While it is easy to accuse developers of causing the greater part of this debacle, in my view, it was the bankers who were responsible. There were a number of telling signs that we had gone off track. The two main banks, AIB and Bank of Ireland, both sold their headquarters to pension funds when the market was at its maximum. If that was not bad enough, the banks then got a tax break which is costing taxpayers additional moneys. Again, the banks are running rings around taxpayers, the citizens of this State. As always, they are self-serving and clever. When those who provide funding sell their most valuable assets, alarm bells should go off all over the place. Unfortunately, while alarm bells were going off, well-paid public and civil servants in the higher echelons of regulation chose the easiest path open to them. In other words, they did nothing.
The banks were lending tens of millions to people with no record of trading in a downturn. Funds were allocated to ensure that projects advanced, with no analysis of what would happen if the market did not remain at its height. Did no one believe a slowdown had to occur or that a crash could occur? Did no one believe our property bubble could only end like all other property bubbles worldwide, namely, that it would burst? Where are the people who were talking about a moderate correction to the market and a soft landing? They have vanished because there could never have been such a landing. That was fanciful talk by those who had an interest in keeping prices high. Who are they? They are the Government, auctioneers, bankers and developers.
It is disturbing that some of these now likely to be bankrupt developers are focusing on starting new companies in other countries in order that they might continue to trade. I must say one thing: these guys can build. What I find distasteful is the prospect that people who contributed significantly to our recession can adopt a business-as-usual attitude and commence trading in other jurisdictions. I have not mentioned builders because many have continued to operate in the area they know and understand best, namely, the building trade. Not all of them went into development.
Members might ask how I have reached the conclusion that State officials took the easy option. They need only consider the position of Mr. Patrick Neary, the former CEO of the Financial Regulator. How could this supposedly independent official cry halt when every Government Minister, the current Taoiseach and his immediate predecessor included, were saying “Party on lads, our economy is built on sound foundations”? How could Mr. Neary, who was appointed by the Government, state that everything his political masters were saying was wrong? It was, after all, former Taoiseach, Deputy Bertie Ahern, who said that independent, objective economists whom he believed to be talking down the economy should consider committing suicide. What was the outcome for the former CEO of the Financial Regulator who acted so poorly on behalf of the State? Just like Mr. Molloy from FÁS, he received a massive golden handshake. The lesson is to do one’s job badly and be rewarded for it.
Fianna Fáil, which has been in Government for 23 of the past 25 years, has led us to this. God forbid that independent regulators should have acted independently. This would have been too much to ask. What were the governors of the Central Bank and Financial Services Authority of Ireland doing when these events were occurring? The fact that the European Central Bank holds sway does not mean that these individuals could absolve themselves of carrying out all further duties. However, absolve themselves they did. We, as a nation, are now paying the price.
The Minister for Finance stated that he will accept amendments on Committee Stage. The issue of valuation has received a great deal of coverage but that relating to the types of assets involved has not. In my view, we have the good, the bad and the ugly assets. There is, however, a fourth type, namely, the useless asset. I refer here to the €9 billion in rolled up interest owed to the banks. This is not an asset. Why are we giving the banks a free pass in respect of interest? Another useless asset is the €28 billion given to Anglo Irish Bank. These funds will never be seen again.
Why is the Government not facilitating small business in the same way it is assisting the banks? There are animals grazing on some of the ugly assets to which I refer and that is likely to be the case for many years to come. I am of the view that there must be a buy-back clause in respect of these assets. The banks would love to transfer them to NAMA at the supposed prices at which they were originally purchased. During its lifetime, NAMA will never realise those prices, or a fraction of them. The relevant clause will then force valuers acting for the banks to identify a realistic figure that might be achieved over time. If this does not come to pass, the banks must repurchase such assets at the price at which they were transferred to NAMA in the first instance. The taxpayers of today and their successors will, therefore, be protected and will not forced to take the most deplorable hit in respect of the poorest of assets purchased by developers in the Celtic Tiger era.
Assets which involve estates that have almost been completed must be handled carefully. I have heard some talk of social housing being provided in these estates. I was previously a member of local authority and I urge caution in this regard. Ghettos are man made. God forbid that the State might allow the mistakes that were made in Limerick and Ballymun to be repeated in every town throughout the country.
The current market value of assets must be considered. What is that value at present? The market value of a residential unit is what it sells for today, irrespective of whether the sale is a forced one. A sale is a sale. Why do we have an archaic system which does not allow the public to know the actual price of something? A private treaty sale should not be private. There must be open disclosure of the amount for which a property changes hands. This can be easily achieved. When legal representatives close a sale, the Revenue Commissioners could be notified and the amount involved could be placed on the relevant website within a short period. This would stop the type of sharp practice that held sway for far too long whereby the prices related to people were incorrect. Under the system I propose, if a house is sold and a buyer wants to inquire as to the price, he or she can check the website to discover the real figure. The secrecy involved in the current system always ensures that unsuspecting purchasers overpay for properties.
The Government believes this is a “Ronseal” deal. In other words, it does what it says on the tin. My concern is that if we value these assets high enough, it will give the banks the opportunity to cash their Government bonds with the European Central Bank. For all intents and purposes, this is the European Central Bank’s way of injecting capital into the economy. We thank it for that. However, there is no guarantee from our friends in the lending institutions that the funds in question will be invested to ensure that existing jobs will be protected and new ones created.
Many jobs are teetering on the brink of extinction because of cashflow difficulties. As a result of these difficulties, the banks have not, to date, facilitated sustainable businesses by providing them with funds. The banks can put the funds provided by the ECB on their own balance sheets in order to meet the requirement for them to have in place the correct ratio between funds lent and funds on deposit. The doomsday scenario is that even after all these funds have been provided by NAMA, the State will be required to further recapitalise and even nationalise the banks. That matter is for the State and no one else to decide.
I wish to take issue with the Minister for Finance, Deputy Brian Lenihan, and the EU Commissioner for Economic and Monetary Affairs, Mr. Joaquín Almunia. Mr. Almunia attended a press conference on Friday at which he stated that NAMA should be rushed through as quickly as possible. This represents an outright interference in national affairs. It is unforgivable that an EU Commissioner should make such an intervention on the night before the Green Party took its vote to keep Fianna Fáil in government.
There is a long-standing convention that Commissioners do not interfere in national politics. However, as can be seen with the NAMA legislation, all pressures are being brought to bear to ensure a successful outcome. The Green Party Members, who rolled over so easily are no longer green but are more akin to turquoise.
As for the banks, these are the same lending institutions that facilitated the transfer of funds out of the country illegally and the establishment of many offshore accounts. They set up dozens of accounts per client, in some cases with false names, to mask their clients and their fraudulent actions. Those who were caught were pursued by the Revenue Commissioners and paid the relevant tax, interest and penalties that were due. The banks paid their fines and continued with business as usual. How can one trust these people when their actions and deeds have been so dishonourable towards the State? Lending institutions have a commitment towards shareholders with no public interest remit. However, when they face ruin due to their reckless trading, they ask the State to intervene and save their industry. Other countries that have bailed out their banking sectors are finding out how grateful are these banks. The Obama Administration is highly dissatisfied with its financial institutions, which are not lending to any business, big or small. Will we find ourselves in the same position? This is not simply my opinion. Dr. Michael Casey, former head of economics at the Central Bank, described NAMA as a stroke. At the Glenties summer school, Dr. Patrick Honohan, who now is Governor of the Central Bank, stated there was no guarantee of lending from the Irish banks. The European Central Bank has noted that banks have a self-interest in hoarding money and Professor Joseph Stiglitz stated that to buy over market value was criminal. I note that Professors Stiglitz and Krugman are both Nobel Prize laureates in economics.
This Government is so determined to operate on a business-as-usual basis that another major concern arises. Instead of lending to small businesses, what if the banks trade conservatively and purchase Irish Government bonds? In this scenario, the Government provides its bonds for the six covered financial institutions, which in turn cash these bonds with the European Central Bank. The aforementioned banks then buy Irish Government bonds on the international markets. While this is not allowed, if it happens it will be nothing short of a three-card trick.
Astonishingly, our six institutions, which are small by international standards, are placing their corporate identity ahead of everything else. Members should recall the belligerence shown towards the Minister for Finance when the idea was floated about a merger of some of the aforementioned institutions. Their corporate identity is much more important than safeguarding taxpayers’ money. The Minister for Finance must ensure that the observation of NAMA is open, transparent, and unquestioned by all because, otherwise, the public will not believe this one-party Fianna Fáil State will not favour those who have funded them throughout the Celtic tiger era boom.
The Minister for Finance must ensure that taxpayers are not compromised by developers whose loans have been transferred to NAMA but whose liability to the State remains the same. This can be no developers’ charter for them to renege, file for receivership or go into examinership only to reappear some time later to continue trading as though nothing has happened. These are the same people who helicoptered, jetted and lived like merchant princes of the 1700s. Taxpayers will not accept funding NAMA to allow developers re-establish business as usual. There are concerns that many developers have placed properties with no mortgages into family members’ names. While their companies may be bankrupt at a corporate level, such individuals still will retain a huge asset value that is out of reach and in effect is being paid for by the citizens. This is not acceptable. The personal guarantees are a legal minefield and may not be worth the paper on which they are written. I do not doubt there will be many legal challenges before a clear corridor is available for officials within NAMA.
The Zoe group’s court cases over the summer require comment as to have two cases heard within a few weeks in this State’s superior courts is unique. However, the Supreme Court headed off the Zoe group at the pass and criticised the concept of future economic value by stating the only value is current market value and that anything beyond that is a guesstimate. The banks covered by the State guarantee and NAMA have a huge question to answer. How can NAMA deal with a covered Irish institution that has a property with a mortgage on it when a non-covered bank trading within the State also has a mortgage on the same property? Will NAMA pay off the cross-mortgaged properties of those non-covered institutions which trade in the Republic?
The civil servants in our one-party State who chose not to tell the emperor he was wearing no clothes will be the same individuals who will attempt to force the banks to provide capital to business and who failed us at the peak of the boom. Do the State’s employees have sufficient financial, legal and administrative abilities to compete with the hired guns that the major banks and developers are likely to draft in? I do not believe so.
Will the Government bail out citizens as quickly as the banks? The Department of Social and Family Affairs will not provide mortgage interest relief for a household with any source of earned income. In the case of a dual-income household that is working to pay for its house, even the loss of one job and reduction to part-time status of the other will elicit no help for such people from the State, which is highly unfair. When will a NAMA be provided for those who are earning the least and who bought the most expensive properties in the country? Such people, who did it right, should not be allowed to fail. The muscle and power of this great little country should provide support and backup for these people.
The Fine Gael proposal for a recovery bank has been dealt with by my colleagues on this side of the House. It is a good idea, which would provide €22 billion in a wholesale bank market to ensure the continuation of business. The purpose of NAMA is to allow time and inflation catch up on the €54 billion. The Bill to provide this sum is the worst legislation that has ever come before this House. The real difficulty with NAMA concerns our ability to provide funds for those within the State who need its services. The measure of any society is how well it looks after those who are less capable of looking after themselves. However, this proposal will remove our capacity and the cuts, savings, adjustments, or whatever the Government Members wish to call them, will be for naught. All our abilities to raise additional funds will be consumed by NAMA and banks are to be looked after before the citizens. If one is keeping score, the score is €77 billion to the banks and nil to the citizens.
In conclusion, I wish to demonstrate what is a million and what is a billion because figures involving millions and billions are being thrown about and people have lost sight of what they mean. While people may know what is a million, a billion is 1,000 million. I propose to count in seconds rather than in euro. If one counts 1 million seconds and transfers that number into days, it amounts to 12 days. However, 1 billion seconds amounts to 12,000 days or 33 years. If one takes 54 billion seconds, the equivalent figure is 1,750 years. We could be paying back this money forever.
Deputy Michael Finneran: I am pleased to contribute to this historically important debate on the Bill to establish the National Asset Management Agency. I add my name to those who have already commended the Minister for Finance on publishing this legislation. I cannot think of a more important item of legislation to come before the House and, given the circumstances that created the need for this Bill, I hope that nothing of this magnitude need ever appear before the House in the future.
The scale of the difficulties the Minister and the Government are seeking to overcome might appear daunting and intractable but anyone who reads the Bill will quickly see how clear-headed and straightforward is the approach of the Minister. This is one of the great strengths of the Bill and the overall approach to securing the future stability of the Irish banking system and allowing the lifeblood of any economy, the flow of credit to businesses and households, to flow.
From a housing perspective, particularly in terms of social housing, I see enormous potential for real and meaningful synergy between what NAMA will do and what my Department is already doing. For some time, the social housing investment programme has been undergoing a significant restructuring to shift the focus increasingly towards long-term leasing arrangements, with lesser reliance on construction and acquisition. I have initiated this restructuring for a number of reasons. If we are to cater for the range of social housing needs that exist at different stages of the life cycle, a uniform social housing stock does not fit the bill. We need a flexible system of graduated supports that can be adapted to cater from differing needs of different households throughout various stages of the life cycle. It must also be capable of taking account of the changing circumstances, for better and for worse, of a particular household over time rather than focusing and permanently defining need by reference to a point in time snapshot. As part of that, we must accept that the most appropriate response to social housing needs is not always the provision of a physical social housing unit for life.
The approach I am taking is also a reflection of the new reality in the property market. While demand in the housing market acted like an on-off button, dropping off rapidly, the supply side was more like a cooling oven, slower to respond to the change in market conditions. The result is a considerable oversupply of housing available for occupation around the country. Estimates of the overhang range from 35,000 units at the low end to well over 100,000 at the upper end, depending on how one defines the issue. The most recent full assessment of social housing need in March 2008 indicated there were more than 56,000 households on local authority waiting lists in need of housing. It is likely this figure has increased in the meantime. Even if we were operating in a resource rich environment, it would make eminent sense to endeavour to match up these existing unsold units, of the right type in the right location that meet the sustainable community agenda, with existing demands rather than add further to the housing stock to meet needs through construction programmes that will take time to deliver. However we are not in a resource-rich environment. Therefore a move away from the tried and tested build or buy approach is driven by necessity. Were we to stick to construction and acquisition programmes to meet social housing need we could not hope to make any meaningful inroads into existing need.
By contrast, through careful management of the programme and by taking advantage of the value in the market, the long-term leasing schemes I introduced will enable us to continue the momentum built up in recent years in meeting the needs of record numbers of households. Last month I launched a further strand to the long-term leasing initiative that will enable the Government to tap into the dynamism and expertise of the voluntary housing sector. This new approach will allow voluntary bodies to enter into agreements with developers or landlords interested in leasing units on a long-term basis and also to engage directly with the lending institutions with a view to acquiring homes that will be leased for social housing purposes. This innovation has the potential to transform the landscape of social housing provision in Ireland.
Direct lending by banks to voluntary housing bodies for such purposes with the leasing income stream as a means for servicing borrowings is a further example of clear-eyed alignment of the Government’s social and economic objectives. Banks get to return to prudent and responsible lending, using the flow of credit to the economy, and the funding advanced means that the housing needs of disadvantaged households can be met. From the perspective of the voluntary and corporate housing sector, this initiative will enable it to have less reliance on Exchequer support, making the sector stronger and more dynamic. It will further cement the partnership between the sector, the State and local authorities in delivering this crucially important aspect of social policy.
This is happening even in advance of the formal establishment of NAMA. My Department is finalising the terms of an agreement between the Irish Banking Federation, the County and City Managers Association and the Irish Council for Social Housing, setting out a shared understanding of each party’s potential role in progressing the long-term leasing initiative. At the moment several voluntary housing bodies are advancing proposals with various financial institutions that could see units delivered very quickly.
Once NAMA is established and loans transfer across with properties attached, my Department will step up engagement with the team. This engagement has been under way for some months and I have met with representatives of NAMA as we seek to extract the maximum social dividend from the overall process by providing a return on residential units suitable for long-term leasing purposes. The interim NAMA team has already met with some voluntary housing bodies. I welcome this direct contact and hope the relationship continues to be fruitful for NAMA, the voluntary housing sector and my Department.
The approaches I have outlined and the clear synergies with the role of NAMA point to a considerable social dividend that will be delivered from the Government’s overall efforts to restore the public finances and our banking system to health. We are acutely aware of what is being asked of the taxpayer. I welcome the safeguards in the NAMA Bill and the proposed inclusion of a loss levy.
In parallel with NAMA, our focus is on maintaining or restoring the financial well-being of individual households and addressing issues of debt. The new programme for Government sets out commitments on debt enforcement and support for distressed mortgage holders to expand and make more flexible options available from lenders and borrowers in dealing with debt situations. Notwithstanding the extremely low rate of repossession in Ireland by international standards, it is important that the full range of mechanisms is available for fair and compassionate resolution of debt management problems.
I conclude by commending this Bill and by complimenting the Minister and his officials on their hard work and clear vision. I look forward to working with NAMA and to continuing the efforts of my Department to deal proactively with the new circumstances in the residential property market, seeking to make economic necessity and social need work in tandem.
Deputy Mary Wallace: I acknowledge and appreciate the fact that the Minister for Finance published this legislation on 30 July, allowing ample time for people across the country to debate the matter. It has been debated at many meetings and by all citizens. It is an issue that everyone has a view on and this is a good thing in itself. NAMA is the most important Bill to arise in the House in decades. When we are long gone from here we will remember this time, this decision and why it is so important. NAMA is designed to provide the banks with a clean bill of health and, as a consequence, provide the flow of credit on a commercial basis to individuals and businesses in the economy.
The banking system is vital. From meetings we have all had with businesses and service providers who are having difficulty securing finance to develop their businesses, we see the importance of the banking system in terms of the loss of jobs from those unable to develop their businesses. It is essential we address the issue of the availability of banking finance in the economy, particularly to small businesses. Governments all over the world have had to step in during the international crisis. Delaying action in these matters is not an option and only puts a greater cost on the taxpayer in the long term. It is very important to act now in order to benefit from the economic recovery as it emerges in the United States and across Europe.
We are all very disappointed at the state of the banks and we are annoyed at the way our regulatory system let us down. There was appalling behaviour by some in the financial system and it is important that confidence is restored through the action now being taken by the Government in this legislation. There is no doubt that the banks should be exceedingly grateful to the taxpayer for support. In return for the support, the Government has every right to expect the banks to play their part in the economic recovery of the State.
An essential element of this is the provision of credit to business to develop, protect and create jobs. The public knows we need the banks and we cannot have an economic recovery unless we fix the banking system. People need to be reassured and the restoration of confidence is and will be key.
The decline in the country’s economic fortunes has been dramatic, profound and extremely swift. Throughout the country people have lost jobs and taken pay cuts, with many people genuinely trying to stay afloat. People are suffering and businesses are struggling. It is imperative for our sake and for the sake of our children that we address this situation immediately because without a banking system we do not have an economy. The banking system has let us all down but it is essential for the economy that the banks are revived. However, this revival must go hand in hand with major reforms and restructuring of operations to ensure our people and economy are served in a proper manner by our banking system.
Through a series of measures, the Government has sought to stabilise the banking sector since September 2008, beginning with the State’s guarantee of 29 September 2008, the recapitalisation of AIB and Bank of Ireland and the taking of Anglo Irish Bank into State ownership to prevent it from destabilising the rest of the banking system and the economy. There is no doubt the banks should be exceedingly grateful to the Irish taxpayer, and the Government has already taken a number of important steps to ensure changes in the banking system, including the holding of shares in AIB and Bank of Ireland that have gained significantly in value since the taxpayers’ investment, a cap on bank executives’ pay, the fees that will accrue to the State as a result of the guarantee and the imposing of the new rules on the banks in their dealings with businesses and residential mortgage clients.
The establishment of the National Asset Management Agency is not about bailing out the banks but about saving the economy. All of the measures taken by the Government have sought to stabilise the Irish economy and to protect the Irish taxpayer. As a result of NAMA, the banks will be in a better position to raise funds for lending to small and medium sized businesses as well as to individuals. The banks will have greater access to cash through world markets and the European Central Bank because of the transfer of bonds from the State to the banks in the payments of the loans.
The system which we are debating, the National Asset Management Agency, has the backing of the IMF and the ECB. Both of these international agencies have commented favourably on this approach. In its recent report on Ireland, the IMF recognised that NAMA is a crucial step in resolving the banking crisis and will deal with the uncertainty about the asset quality, in particular those relating to land and property and associated loans on the banks’ balance sheets. The IMF and most experts agree that as long as this matter is left unaddressed, the banks will not be able to play their part in the restoration of economic growth. The IMF described NAMA as pivotal to the orderly restructuring of the financial sector and limiting long-term damage to the economy. Financial markets and international commentators have already reacted positively to the NAMA legislation. Last week, the Financial Times stated that nine tenths of the detail of the plan are absolutely right; its only concern is that the proposed bank levy in the event of NAMA making a loss might be too hard on the banks.
With regard to developer account holders whose accounts will move to NAMA, it is important to note the clarity from the Minister that the amount a borrower owes will not change because of a transfer of a loan to NAMA. I also welcome the Minister’s announcement that he intends to issue guidelines governing the agency’s interaction with borrowers in the completion of properties acquired by NAMA.
There has been much debate on the value of assets that NAMA will hold and discussions about current market price. There is no current market price for land or development products because there is no market. Banks are not making loans for land and development available as these loans are still on the banks’ books. This means there are no buyers. NAMA will not fire sale these assets; it is expected they will be disposed of over a five to ten year period. An important matter the Minister identified for us is the estimation that NAMA will have to achieve less than a 10% uplift over current market values on its assets over ten years to break even.
Another important point of clarity from the taxpayer’s point of view is that if NAMA makes a profit this money will accrue to the taxpayer. The Labour Party has proposed blanket nationalisation and that alone——
Full nationalisation would involve huge upfront costs from the taxpayer which the State would have to borrow on the international markets. This is at a time when we are borrowing €400 million a week just to keep going. The Government has made it clear that if any further capital injections are required from the State for either of the two main banks it will be in the form of equity capital, which would have the effect of increasing State ownership of the bank.
NAMA must be established and begin its work quickly to have the most impact and help the economy to recover as soon as possible. Some European countries and the United States are beginning to recover economically. If we do not take full advantage of what this recovery strategy offers us we will inevitably lose crucial time in our quest to stabilise our financial sector and limit the long-term damage to our economy. The sooner this legislation is implemented the sooner the banks can start lending again. This is in the best interests of the Irish people and Irish business.
I am old-fashioned in my view of politics and economics. I understood the basic rule of capitalism was that the market determined the price and value of goods and services; at least that was the way it used to be. Professor Joseph Stiglitz has been much quoted in recent times. He is a Nobel laureate in economics, a former World Bank chief economist and was an economic adviser to former President Bill Clinton. He is not an unimportant observer in these matters and his firm advice to us — as a social democrat it is not something I would normally exhort to the House — is to play by the rules of capitalism. It is a view that was firmly enforced by those who cheered on the economic bubble that was the Celtic tiger.
For the boom years the Government took hold of an economy left to them by the rainbow Government which was creating 1,000 new jobs a week based on solid exports, industry, production and real goods and services and created a parallel false economy based on inflation and bubble economics whereby we could all have a notional ever-increasing value on our homes and one could invest forever more in pyramid selling of land and property and it would be all right forever more. On that basis we could reduce our tax base and increase public expenditure because this bubble was going to expand forever.
It is a profound irony that what is now proposed in the Bill before the House is that the rules of capitalism are no longer to apply to the capitalists. The rules of capitalism are not to apply to the speculators and bankers who created the problem in the first instance. Of course, the rules of capitalism are to apply in full measure to ordinary mortals, those who bought their homes at the height of the boom. They are left with inflated mortgages which they will spend their lives trying to pay back. There is no redress or support for them. The Bill proposes to place a generational burden on the taxpayer. We do not know the cost despite all the stabs at costing it from the Government side of the House. The true cost of this extraordinary measure will not be known until the fullness of time.
The core of the proposal is amazing. The basic principle is to overpay banks for assets. That basic core principle has been described by Professor Joseph Stiglitz as criminal. That is hardly an understatement of reality. He also said:
What is proposed, however, in NAMA is that the State will overpay by design for so-called distressed assets on the basis of a new economic concept that I never heard before — the hope dividend. The new concept for economic planning – certainly not a sound one for State economic planning – is that we are to hope that some time in the future the value of the assets we take into public ownership now will be greater. We will not pay the market, the real or true value of these assets but instead put a price of hope on them, hoping it will be achieved some years hence.
Valuing these assets is like a gazing into a crystal ball or being an economic Mystic Meg. We are going to gamble the good name, treasure, fortune and resources of this State at taking a stab in our depressed economy on the potential price of assets that were deliberately overvalued in recent years.
Members opposite get agitated when it is fairly and honestly stated that this is a banker’s solution, if a solution at all. I am sorry Deputy Wallace has left the Chamber but the Labour Party alternative is not blanket nationalisation. Instead, it is a temporary nationalisation of the strategic two banks to achieve, as Joseph Stiglitz said, the normal aims of capitalism – that he who buys the assets, controls the outcome. There is no easy solution in all of this, any solution is fraught with risks. To minimise risk and maximise safeguards for the taxpayers of today and the future, the agreed path of many economic commentators, including Professor Stiglitz, is the Labour Party’s choice.
The Government’s expectation of property price rises in the future is an essential ingredient if the NAMA plan is to succeed. Apparently, we all, collectively as a nation, must hope for another property boom as the way of getting back the State’s investment. This is the property boom which has already proved ruinous to thousands of ordinary families across the country who cannot pay the exorbitant prices it created for housing.
The Greens have grafted in a community role for NAMA which leads to a contradiction. Is NAMA to be an agency to get back public moneys or a property investment agency which will give out land for social purposes? The two cannot be encompassed in the same objective.
Another suggestion is that NAMA money is not real money, meaning it could not be spent on the provision of public services. It is a State guaranteed bond, a State IOU, in exactly the same way as every other State borrowing is achieved for the normal day-to-day running of the State. It is real money and a real enormous crippling debt. Worryingly, it is to be funded on the basis of a six-monthly bond at plus 1% of the ECB interest rate. Every 1% interest rate change, with the €54 billion in question, will mean an extra €540 million per annum on payments.
The main need of our economy now is the release of capital, a fact I am only too aware of having spent last Monday night with Wexford businesspeople at a forum in the Ferrycarrig Hotel. Small businesses are going to the wall for want of money. When it is stated with conviction that banks will start lending again as soon as NAMA is enacted, I do not believe it unless the State insists on taking ownership and dictating lending policy to the banks in the short term.
It looks like we are stuck with the NAMA solution. It is now Government policy, endorsed recently by the Greens and Fianna Fáil. We are stuck with this enormous gamble for ourselves and our future. It falls to the rest of us to pray that the Government solution is not worse than the original problem that the failed politicians on the other side of the House caused in the first place.
Deputy Ciarán Lynch: An examination of the census figures demonstrates how unsustainable the property market had become. Between 2002 and 2006, the number of households in Ireland grew by 181,563 with an additional 260,718 housing units being built. Up to 80,000 houses were built as holiday homes or empty investment properties. It was unsustainable that 30% of new housing should be empty. Despite this surplus, house and land prices continued to rise suggesting demand was even greater than the unsustainable supply. It was, however, a false demand buoyed up by falling credit standards, light-touch regulation, low interest rates, speculation and tax incentives on property.
This led to the establishment of an unholy trinity, a collusion between bankers, large developers and Fianna Fáil. While the property bubble may have burst, who believes this relationship has also ended? During this time we witnessed the reckless game of passing on liability to home owners that was acted out by developers and bankers. A developer would borrow money from a bank to buy land for a housing project at an overinflated price. The developer would then sell the housing units to purchasers at overinflated prices. In turn, the banks facilitated the purchasers with loans, thereby transferring the developer’s liability to the bank on to the purchaser.
What did the bank do with these mortgages, many of them for 35-year terms, which could have been tangible assets in the NAMA process? They sold those mortgages on the international market and with that money gave the cycle a kickstart again by lending money to developers at even more inflated prices. This went around in circles while every September the developer went to the Galway tent, paid his dues and ensured that the game continued.
Another aspect of this game was that the rules for traditional loans went out the window, 100% mortgages were introduced, the ratio of wage to value of home was abandoned to the extent that a first-time buyer was offered a loan of three to four times his wage and the scheduled payment over 20 years went up to 35 years. The basic rules for buying property were abandoned in the past decade and a half, with Fianna Fáil in Government observing this, while bankers used light touch regulation and developers laughed all the way to the bank, knowing that there was a killing to be made from the punters.
Even affordable housing went out the window. The notion that a house bought from a local authority for €250,000 was an affordable house was a nonsense. There are now almost 4,000 unsold affordable units across the country because they are overvalued and the punters know it. Those houses are probably worth €100,000 in the market. The banks threw any duty of care out the window. Their bottom line was to look after the shareholder, while the lender would be looked after by other means. The fundamental rule of banking is that banks exist to serve shareholders and that will remain as we go into the NAMA process.
There was no consideration given to the idea that lenders might become over-stressed because the group-think of the unholy trinity of Fianna Fáil, bankers and developers was that the property values would increase for ever. They did not care if the home purchaser defaulted on his or her loan, or if they had to repossess the house because they believed they could make a profit on the asset so they lent like hell.
We are engaged in the subordination of democracy with what may be described as “the namafication” of every policy that goes through the Dáil. We witnessed that this afternoon as the Minister of State at the Department of the Environment, Heritage and Local Government, Deputy Michael Finneran, indicated that social housing policy in future will be determined by long-term leasing and letting. The priority is not for local authorities to purchase homes to make a long-term investment for sustainable community development but for them to get out and lease vacant units. That is “namafication” of social housing policy. It is also present in the retail sector where the downward rent reviews are held up although the Bill was passed on 1 July last to create an inflated market value on properties for the NAMA evaluation. That is causing serious difficulties for businesses that operate in the retail sector where the cost of rent far exceeds the costs of employment, energy and other factors, which is outside the European norm.
Everybody expected that NAMA would offer some redress to the ordinary person who bought a home in recent years and now finds that not only is the bank doing him over for his mortgage repayment, but that while the banks are being bailed out the Government is not stepping in to protect him. It is estimated that there could be 35,000 families in mortgage arrears, an increase of 150% in the past 16 months. From 1 December 2009 legal proceedings dealing with mortgage difficulties will shift from the High Court to the Circuit Court. In 2008, the High Court issued 120% more repossession orders than in 2007. When the Circuit Court deals with these cases the legal costs of repossession orders will be significantly reduced, making it inevitable that these figures will increase substantially. The Irish residential market is worth €150 billion and the value of arrears is estimated at almost €3.5 billion, or 2.3% which is up from 1% in the same period last year.
As this crisis continues to grow we are witnessing the most expensive Bill ever moved in this House in order to bail out banks and developers that colluded, with the Government’s assistance, to create the problem. There has been no legislative action. The only action to date has been to deal with a voluntary code that the Government states it is observing.
I propose the establishment of a national home mortgage agency to deal with stressed mortgages and help individuals and families remain in their homes. The consequences of families losing their homes are well known. The agency would require a legislative framework to set out the criteria by which mortgage difficulties would be managed. It would set out the obligations of Government, lending institutions and borrowers.
In essence, the process would be an independent assessment which would establish the sustainable amount for distressed borrowers and what they could pay each month. The agency would bring together borrowers, lenders and Government so that all stakeholders would share in the cost of ensuring that homeowners could afford their monthly mortgage repayments and stay in their homes. Furthermore, it would set the parameters for mortgage assistance for those who are suffering because of the economic downturn and would set out the eligibility factors ensuring that borrowers make reasonable repayments and that this is not just a cop-out for them. It will also involve the rescheduling of mortgages along with eligibility factors and a requirement that the borrower would be in regular contact with his or her lending institution. The independent agency would review the eligibility of each applicant and assess whether the borrower should increase his or her payment or be entitled to an extension of the reduced payment.
I propose a first-stage approach that will lead to the beginning of badly-needed normalisation of the residential property market whereby working people can afford to buy their homes at just prices, and expect to repay their mortgages within a predetermined and reasonable period with the assurance that they are protected in so doing.
Deputy Timmy Dooley: I welcome the opportunity to speak on this important issue. As the previous speaker said, we are here tonight to normalise and make a new beginning in a situation which has spiralled out of control and needs to be addressed. Fortunately or unfortunately, this Government is the only group putting forward a proposal that has the capacity to deal with the issues to which Deputy Lynch has referred, normalising a way of life for so many, whether homeowners, small businesses, employers or larger enterprises that have not been able to avail of the necessary credit to allow them to continue in business.
We are here because of the poor lending practices of the past. Competition from external banks forced others into a position such that in order to maintain market share they had to give up many of the prudent practices that existed prior to the entry to the market of the external banks and follow their poor and imprudent lending practices. Many of these pressures came from international sources.
We often fail to recognise that this is part of an international problem. While we have a problem that is peculiar to Ireland it must be viewed in the context of what was initiated in the United States. It happened some time prior to the collapse of Lehman Brothers. It started with the Clinton policy and the development of the notion of the subprime mortgage and the bundling, processing, re-processing and re-sale of what are, and clearly were from the start, toxic assets. People borrowed money who had no capacity to repay it. It was a policy of the Clinton Administration. President Clinton stands over a policy that had been good in very many ways but which failed, initially, with the failure of Freddie Mac and Fannie Mae. We know where matters went from there. The comment in this House and abroad in the country would lead a person to believe the problem we have is in total isolation.
The banking practice that emerged in this country over the past ten years is very different from that which existed heretofore. During that period people on all sides of the House took pride in the fact that interest rates were much lower and not at punitive levels. We all knew people who were cursed in the past with rates of 20% or 21%. We prided ourselves out of that and perhaps did not realise what was opening up with the availability of money from money markets rather than from the deposits which were a factor in a bank’s capacity prior to this. The regulation regime allowed that to happen and policy makers on all sides of this House espoused it as the way forward. It recognised, or reflected, a population and an economy that were maturing and that was something we embraced. To try, as some have done on both sides, particularly among the Opposition, to lay this at the door of Fianna Fáil and in this cynical way suggest it was something cooked up at a race meeting in Galway is disingenuous. It belies those persons’ record in this House on policy development and in the approaches they took and the campaigns they led, whether from a trade union point of view or in commentary in this House. It does not do them any particular honours to take this approach.
Notwithstanding that, the Government has had to deal with what was clearly a very difficult situation. The suite of policy measures it has brought forward is appropriate and commensurate with the challenge and risk that existed at every opportunity, initially through the bank guarantee, through the €7 million recapitalisation of AIB and Bank of Ireland and the ultimate nationalisation of Anglo Irish Bank. It has been suggested there might have been some other way and that Anglo Irish Bank, because of the toxicity of its assets and the practices that existed there, could have been eliminated. This was suggested in despite of the people who had deposits or the bondholders, many of which were smaller institutions that provided credit in this State and pension funds. That suggestion shows, at a minimum, an ignorance of the facts and, at best, an underestimate of the importance, from a systemic point of view, of where Anglo Irish Bank stood within our financial structure. NAMA is a requirement at this stage.  It is about freeing up credit and that is clearly what the Government has set out, in response to the needs of Irish people.
There is an issue about wrongdoing and I will not go into it. It must be addressed. Collectively, we must find a system to bring people to justice more quickly. I do not suggest it should be administered in this House. We have all commented on this — some with regard to the way justice was denied in this House most recently. It would be wrong to try in this House to bring justice to those who have perpetrated wrong. However, there are issues with regard to Anglo Irish Bank. They concern the hiding of personal loans, the bed and breakfast approach to deposits in other institutions, and institutions making deposits in Anglo to boost or misrepresent results. There was the distortion of the market by contriving to sustain a stock price that clearly should not have been sustained. That points towards corruption. As a society we must be much quicker in addressing this and bringing people to book if we wish to restore the credibility our financial system must have if it is to serve the citizens of this State in future years. There was no choice about nationalisation. Clearly, the approach NAMA takes in dealing with toxic assets will provide a cheaper suite of finance to Anglo Irish Bank than would have existed heretofore.
There has been reference to the long-term pricing issue. That shows an ignorance of the facts regarding how one might deal with so many assets, so much value and so much volume. If we were to do a mark to market in an environment where there is no market effectively we would be saying it was a fire sale. Who would end up with the assets? If one were to take that approach, there would be no need for NAMA in the first place. One would effectively throw away our entire property and development book, and the entire existing asset base required for the development of this country over the next 30 to 50 years, into the hands of sovereign wealth funds, Middle Eastern wealth funds established on the back of the oil industry or some of the Chinese wealth funds. I do not believe anybody would suggest that the way to dispose of these assets is by way of a fire sale into an environment where no market exists in this country. It is about an orderly disposal of the assets and this can only be done through NAMA.
One must set some price in the event of not having a market. Clearly, the approach being taken also acts as a stimulus because the funding coming from the European Central Bank is at the extremely low rate of 1.5% when moneys on international markets are currently costing much more. When one considers that €4 billion of that money will go into Anglo Irish Bank, this should reduce, to a very real extent, Deputy Howlin’s concerns. Perhaps these were the concerns of the Nobel Prize-winning economist. If we were to have a discussion about that economist-professor, he has made some rather strange utterances in the past that I do not believe would find favour in the democratic system we operate in this country. Perhaps that is for another day.
There have been statements, most recently by Deputy George Lee, that the taxpayer was funding NAMA. There is another canard if ever there was one. The taxpayer is not funding NAMA — the ECB is doing so. With the inclusion of a levy regime, as proposed by the Minister, it is clear that the taxpayer will not fund NAMA. Banks will ultimately have to do that in the event of there being a loss which is not envisaged at this stage.
The biggest issue from now is to ensure that banks will lend into the economy when they come into funds as a result of the passage of the NAMA Bill. It is important that they do not hoard that cash. They are getting the money at a cheap rate. Clearly, if they were to put it in the markets they would get a better return on it than what they will pay for it and we must ensure they do not do that. I am concerned about that area and that there is not effective competition between the banks at present. We need at least three banks in this State to create the kind of competition that is necessary.
To an extent, I am concerned that there is a capacity for the gouging by banks of some of their customers. It is happening already. They are doing this because they can, because there is no competition. I have seen a number of examples, particularly where banks are imposing punitive margins on viable businesses. I am aware of customers with viable business who have attempted to rearrange contracts in order to reduce to some extent their overhead and allow themselves a bit of breathing space as they go through a difficult trading period where they are repaying interest and capital. In an effort to reorganise their affairs, the banks are attempting to put a multiplier on the margin that exists, of 2%, for example. In some cases they are attempting to multiply that four times to a margin of 8%. We must find a mechanism to prevent that because it is wrong. The banks are taking an approach on viable sectors other than the property and development sector in which they have maxed out. They got that wrong and are now attempting to recapitalise and reposition themselves by targeting people who are trying to survive through a difficult period.
I hope the Minister may be able to find some mechanism within the NAMA structure that will ensure standards other than the code of practice which is laudable and, if properly policed, beneficial. There still is an obligation on all of us to find a way to ensure that the banks, which will be in funds shortly with the passage of this Bill, do not try to use their dominant position in a negative way that will force many of these viable businesses into a position where they can no longer trade.
Deputy Noel Treacy: Is cúis áthais dom seans a bheith agam cur leis an díospóireacht seo ar an mBille seo. I am very pleased to have the opportunity to participate in this very important Bill. Any student of history can look back at the political evolution of this nation, or, prior to that, at previous administrations, albeit of a foreign dimension, and see that in every generation, in every century, almost in every decade, there have been bank failures in this country. Between 1770 and 1800 there were serious bank collapses on this island.
In 1780, a major application was made to the British House of Commons and the Irish House of Parliament, Grattan’s Parliament, to create a new bank. It is ironic that history has repeated itself. The people who opposed the idea were some of the merchant princes of our great capital city and a few others who believed there was a threat to their dominant positions in the national and international marketplaces. At a time when the current financial crisis bedevils our island and there is a need for credit fluidity, it is ironic that Fine Gael on the right, Labour on the left and Sinn Féin on the far left oppose this important Bill.
In 1782, three attempts were made to create the Bank of Ireland. In May of that year, the law was passed and an opportunity for our nation was created. While there was serious opposition to the Bank of Ireland, its important role in our success has been proven. On the establishment of the State by Cumann na nGaedhael in 1922, the first group to which it turned for support was the Bank of Ireland. That support was made available and has helped to create our modern nation. In 1983, Fine Gael turned to the Bank of Ireland and called in favours. It is ironic and unfortunate that the Labour Party, which has had a direct relationship with the management of AIB over the years, is opposing the Bill.
Between 1989 and 1992, I had the privilege of being a Minister of State with responsibility for commerce. With the Minister for Finance, I had responsibility for banking regulation. I am not boasting, but I may be the only Member, past or present, who placed an inspector in a bank as a result of information that became available to me as Minister of State. I took that information to the Minister for Finance and the Taoiseach and we were able to deal with a serious situation. Afterwards, I was given information pertaining to problems that arose in a particular insurance company during non-Fianna Fáil Administrations. I put a team of inspectors into the company and dealt with the situation.
Greater economic and Opposition minds than mine called for a major change in banking regulation. As a result, the Irish Financial Services Regulatory Authority, IFSRA, was established and responsibility for the focused management and inspection of financial structures transferred to it from the Parliament and the Government. The problems that we have inherited came about because those who were highly paid to do their duty did not keep an eye on the transfer of capital from one institution to another. The liberalisation of credit facilities has created a serious problem.
One must be mindful of the changes in Ireland. In 1987, some 700,000 people were employed and the national debt equated to 131% of GDP. By 2007, some 2.2 million people were employed and the national debt had decreased to 25% of GDP. What occurred in those 20 years? There was a major demand for services, infrastructure and housing, all of which posed everyone a major challenge. Economics and opportunity took over and labour, product, service and investment costs grew astronomically. Despite the success of our economy in recent years, the international crisis originating in the US with the collapse of Lehman Brothers and other institutions and problems in Europe, such as Iceland’s economic collapse, created an international wobble in the financial markets. This broke down the trust that was critical to the movement of capital, the opportunity for credit and the capacity for a structured system for the consumers of the EU. Our nation has had its difficulties, but where would we be if the vision of Fianna Fáil in taking us into Europe and the eurozone had not given us the support critical to carrying us through this crisis?
The proposals before the House will have a major impact, in that they will ensure that we can move the banks’ debts to NAMA, borrow the necessary funds, restore credit flows and bring a new confidence to the economy. Through NAMA, we will manage our way in a larger economy with greater capacity and consumer demand and an ever growing export market. During the next three to five years, this will allow us to return to a position of economic growth.
This is not the first time that we have been faced with such a situation. In 1985, when I was a member of the shadow cabinet, there was a serious crisis with the Insurance Corporation of Ireland, which was owned by AIB. On 2 April, the then Taoiseach, Dr. Garret FitzGerald, and the then Minister for Finance, Mr. Alan Dukes, briefed us in the morning about a crisis facing the banking sector and AIB in particular, namely, the impending collapse of the insurance corporation industry. The report was taken to our shadow cabinet by our then leader and later Taoiseach, the late Charles J. Haughey, go ndéanfaidh Dia trócaire ar a anam uasal dílis. We debated it for approximately 90 minutes and took a decision that, in the interests of Ireland and its financial system, we would support the Bill that would be before the House later that day to save the banking and credit systems.
By 8.30 p.m., the Bill was before the Seanad, which sat late to pass it. Before the banks opened the following morning, the President had signed the Bill into law. This solidarity was a gesture of pragmatic patriotism, commitment to the nation and honour and integrity as Members of Parliament. It showed that our collective wisdom was best and that we should work in unison to sustain a financial system for our people, a system that was critical to the evolution, trade and commerce of everyone.
Deputy Noel Treacy: I am shocked by the negativity of the Opposition and the way in which it has decried our efforts to leave this crisis behind and rebuild our credit system. Its approach lacks patriotism. The main Opposition party claims that it can set up a new bank with a capital base of €2 billion within six weeks. How will that deal with liabilities of €100 billion? Fine Gael believes that it can use €2 billion to borrow €77 billion or €80 billion. This is illogical, impractical, unfair and disgusting.
Deputy Noel Treacy: In the interests of our nation, I ask that the political parties give our leadership, which has vision and determination, a statement of collective commitment so that we can pass the Bill unanimously, which would give a major confidence boost to the people and the financial systems that are vital to our future.
NAMA has a number of problems. I have only asked for five minutes because it is important that I place my opposition on the record. The Government wants to pay over the odds for loans deliberately. Mr. Joseph Stiglitz, a Nobel prizewinner, has characterised this as criminal.
He won the Nobel peace prize for being an economist with foresight and understanding of the global economy. Every indication here is that property prices are continuing to fall. We are buying property loans totalling €77 billion at what appears to be a discount price of €54 billion. Is this really the case? Much of this money was borrowed from somewhere else to make the deposit so the real value is very suspect. It is acknowledged that the €54 billion is €7 billion more than its real value, according to current valuations. However, what is the real value and how does one know the real value when there is no market against which it can be measured?
How is €47 billion considered to be the value? Is it a value based on the air in this House or the light coming through the window? In addition, there are indications that values will fall further. We acknowledge that we will be paying €7 billion over the odds and there is no market against which to measure the notional value. In fact, this market is falling and expert opinion predicts it will continue to fall. The Irish taxpayer is being exposed to a significant risk and with no comeback. I have a key triad of aspirations to which I try to adhere since I entered politics: transparency, accountability and fairness. Where is the transparency in this proposal?
Deputy James Reilly: We will be paying even more over the odds than we realise in a falling market. There will be an opaque system with regard to who will manage the fund, how it is answerable to the Oireachtas and the opportunities for political interference and favours. Key to our economy will be to have lending available and NAMA does not guarantee this. What has been the experience to date? I see the Minister of State is shaking his head.
Acting Chairman: I remind the Minister of State that I am bound to protect the Deputy. I ask him to be kind enough to co-operate. I ask Deputy Reilly to address his remarks through the Chair and I will be happy to protect him.
Deputy James Reilly: I will return to the task at hand. The bottom line is there is no assurance that the banks will start lending again. The experience to date has shown that they hid the €7 billion they were given up their jerseys and it has not been made available to anyone. If they are given more money they are likely to do the same. There is no assurance that loans will be available to the people in need, small and medium-size enterprises and ordinary mortgage holders.
We understand the difference between senior bond holders and subordinate debt. It is the subordinate debt that takes the extra risk and attracts the higher interest rate. They are getting away scot free. Where is their sacrifice? I object strenuously to the idea that the reputation of Ireland Inc. will be damaged by taking any action other than this proposal. Ireland Inc., the Irish citizen, the State, did not borrow this money or lend it recklessly, but rather it was the bankers and developers. It is not our reputation or my reputation on the line but the reputation of the banks. The Government should not blackmail us with that threat——
With interest rates at an historic low and bound to rise, there is a further risk of possibly another €10 billion. I will leave it to Deputy Barrett to explain to the House what the national recovery bank would do, how it would operate and how it would ensure that money flows to businesses, because such explanation will require some time and my time is finished. Fine Gael will not support NAMA. We will try as best we can to protect the taxpayer by putting in place various amendments to this Bill on Committee Stage. Moody’s now says that on top of the €4 billion in Anglo Irish Bank and the €7 billion given to AIB and Bank of Ireland, even with NAMA, we will need another €8.5 billion. The Irish taxpayer is being plundered at a time when we cannot even vaccinate our children against cervical cancer.
Deputy Seán Barrett: I love to hear lectures from people on the Fianna Fáil benches about the irresponsible attitude of the Opposition when we do not agree with their proposals, especially when they created the mess in the first place. Criticism should be based on facts. People should go to the trouble of reading or understanding the alternatives presented by our party and by the Labour Party. They should criticise when they know the facts. I suggest such people should not talk about €2 billion and about setting up a bank in six weeks. They do not even know that this was a wholesale bank which was designed to make money available to the retail banks but on condition that the money be used for lending purposes to help businesses. This would allow the existing banks deal with their own problem. We did not create this problem.
Deputy Seán Barrett: When I was a child I was warned that gambling was all right provided one gambled with one’s own money and that one was given good odds. There are no odds in favour of the taxpayer in this proposal. We are in this mess because the banks and the bankers were gambling with borrowed money, contrary to any gambler’s instinct. One never gambles with borrowed money. Now when things have gone wrong, the taxpayer is expected to pick up the tab.
NAMA is a massive gamble and the odds do not stack up. As my colleague asked, what is the value of property? A total of 36% of the outstanding debts are in land. What is the value of a piece of land on the outskirts of some rural village? What assets are in Anglo Irish Bank? I will ask the Minister for Finance when he comes to the House. He is our shareholder. He should know at this stage the up-to-date situation regarding Anglo Irish Bank and all its debts, including the type of debts and the type of properties.
Before this House is asked to vote on this proposal he should use Anglo Irish Bank as an example of how this particular proposal will work. I ask for an explanation. It is proposed that one State agency will take over debts from another State agency and then pay that State agency back some money of less value than what was being taken over. Anglo Irish Bank will give over land and property to NAMA and NAMA will give money back to Anglo. A significant gap will exist. We are informed that Anglo is bust. The taxpayer has already paid in approximately €4 billion or €5 billion. There will be another shortfall of at least €7 billion or €8 billion in Anglo alone. I ask someone to explain how we will make up this huge gap in Anglo. We have not been told by the Minister.
Does he intend to wrap up Anglo or will he endeavour to see Anglo trade itself out and, if so, how will it trade itself out of such a massive debt which has been imposed? We have already ploughed money into Anglo but the reason for which escapes me — it is a zombie bank. We have put billions of euro into Anglo. We will be taking all this property from Anglo, we will put it into NAMA and then put money back into Anglo, but there will be a massive shortfall. How is it going to trade itself out? That is a simple question for the Minister for Finance to explain to the House. Can he do so?
Deputies from the other side of the House lecture us about loyalty to the State and suggest that we should march up those steps and support the NAMA proposal. However, they will walk up those steps blindly and land a generation with a massive debt. It will not be my generation or that of the Acting Chairman, but that of our children and grandchildren. They will have a massive debt around their necks, but the Minister and the Government cannot explain to us in simple language how it will work. It is based on assumptions, including that the value of property has bottomed out, which is not true. All the leading experts would tell the Minister that it has not bottomed out. What is the value? There is talk of handing over €54 billion for loans of €77 billion. Why has the Government picked €54 billion? Why not €64 billion or €44 billion? There is no basis to €54 billion.
Deputy Seán Barrett: An estimate of billions of euro. Billions of euro have become simply pieces of paper now. The attitude is that €1 billion here or there makes no difference according to Fianna Fáil and the Green Party.
Deputy Seán Barrett: We have seen the members of the Green Party crawling to the Fianna Fáil Party over the weekend to get a few bob back to keep our schools running. When the Government introduces a budget next December that will take €4 billion out of the economy, the pain and suffering it will impose on the taxpayer will become apparent.
Deputy Seán Barrett: At that stage the Members on the Government side of the House will understand the value of €1 billion. The business of it being only €1 billion here or there and only an estimate is unacceptable. It is an estimate which involves making commitments to bondholders in terms of pounds, shillings and pence. This is not monopoly money and these are the facts.
Someone told me we had no other option and that as a State we cannot dishonour bonds that banks took upon themselves. Since when was this the case? The bondholders who gave this money knew exactly the risk they were taking. Any dog in the street could see the likes of Anglo Irish Bank and others were pumping money into property and escalating values that no one could justify. They took the risk. Why must the taxpayer now carry the can because these people took such a risk?
The State will be in debt such that bondholders will not be prepared to touch us, never mind the fact that we were supposed to back up banks’ debts. If we get ourselves into such debt we will either pay a very high premium for any moneys that we borrow or we will not get any money in the first place. The options are far greater for the State than for banks. I have listened to those who state that we should all march up the stairs blindly and support these proposals, that it is only a few billion euro here and there, that, sure, it will never happen and it is all nonsense. No one has taken into account the next wave of debt that will occur in banks as a result of defaults on mortgages and commercial loans.
Anyone who went to the trouble of reading the recent European Commission’s report would have noted that the report predicts that in 2010 the EU economy will contract by 0.1%. There are variations between countries with a decline of 4.7% predicted for Lithuania, a decline of 3.2% for Latvia, 2.6% for Ireland and 1% for Spain. This is not over yet. An independent report from the European Commission informs us that the prediction is that in 2010 the economy in Ireland will contract by 2.6%. However, we hear comments to the effect that it has all bottomed out and it is all the way up from here on. Those comments do not stand up to the facts. This is data from an independent report from the European Commission.
I realise time is short but I also wish to question the figures provided by the Minister in his opening contribution to the debate. He stated that the funding of €54 billion was borrowing from the ECB and that we would borrow at a very low interest rate of 1% with a 0.5% premium. However, he assumes the rate of 1% will remain for the next ten years, although all the professional forecasts indicate that long-term rates will rise to 3.8%. That figure will then be added to the 0.5% premium. The Minister’s calculations are based on the assumption that the 1% interest rate will last for the next ten years, which is not factually correct. The information that the House has been given is factually incorrect. The fact is that the long-term forecast is for the ECB rate to rise to 3.8% over a ten year period. If we add the 0.5% to that, the rate will be 4.3%. In money terms, in case anyone on the Government side of the House is interested, this amounts to €10 billion over ten years at a minimum. The attitude is that it is only €10 billion and the Minister is pretending that the 1% rate represents cheap money. He sent out every Minister of State and backbencher with a script to persuade the public that the Opposition was acting irresponsibly and that it had no ideas.
Deputy Seán Barrett: According to those on the other side of the House the European Central Bank is giving the money and we do not have to pay anything back. When the Government Deputies wake up, are they capable of asking themselves simple questions? No one gives money in this world unless they expect it to be paid back. No one gives long-term guarantees unless they expect that there is a decent risk. Proper information should be handed to the public so that the public, in turn, can make a genuine assessment as to the risk with which they are being presented. It will not be those in this Chamber who will pay back this on their own. We will be calling on the people outside who elected us and who sent us here to look after this situation. We should give them the real facts. It is all very well gambling if one is gambling with one’s own money, if one can afford it and if the odds are worthwhile. There is no way anyone, including Deputy Peter Power, who is about to speak, who is a good man and knows about odds——
Deputy Seán Barrett: I am pleased to see that the Minister for Finance is on his way and I call on him, before he wraps up, to explain to me how he proposes to handle the Anglo Irish Bank scene. Would the Minister for Finance ask the child beside him to stay quiet, please?
Deputy Seán Barrett: My simple question is that Anglo Irish Bank will hand over its debts to NAMA and NAMA will hand money back to Anglo, but there is a vast gap because they will not give back what they are taking. How does the Minister intend to handle the additional debt of Anglo in view of the fact that €4 billion has already been invested? How does the Minister intend to handle the additional debt and the gap between the assets handed over to NAMA and the money NAMA will hand back to Anglo Irish Bank? Will the Minister explain in simple language how he intends to handle this situation?
Deputy Seán Power: We have had a considerable discussion on this legislation in recent weeks but, unfortunately, much of the debate has been predictable. In my experience, once the Government proposes something the Opposition often feels compelled to oppose it. I know the Opposition has a role to play but we must have a radical change in the way we do our business, both in the House and outside it. For example, the House will not sit during the week following the bank holiday weekend. There is no justification for that, however, so I ask the Chief Whip to ensure that the House sits then. We are not long back since the summer holidays and the public has never been so cynical about politics. We need to make this House relevant. We are talking about establishing NAMA where billions are thrown around, but the majority of people may not be too sure how many noughts are in a billion. It is important for us to make the House relevant to the public and explain clearly what we are doing and why.
This country is experiencing the most serious financial downturn in living memory. In recent days, we have spent most of the time debating expenses, how much Members were paid and if they were entitled to it, whether they overspent and, if so, was it exorbitant. I left a business career to become a Member of this House. Nobody forced me to come here, I volunteered and was lucky to be elected. I feel it is an honour and a privilege to be a Member of this House. It is essential that Members receive a good salary. Public representatives should be rewarded appropriately and politics should attract good people to public service. I have no regrets about coming here and I would like to remain here for a number of years to come.
Recent events, however, have served to discredit public life and create the impression that politicians are just in it for the money. It is important to rebut that impression quickly. This day last year, the Minister for Finance introduced his budget, including a measure to reduce Ministers’ salaries. He must go further in the next budget. In view of the serious financial situation in which we find ourselves, there is no justification for the moneys that are currently paid to members of the Cabinet. We should show real leadership in that regard. We have asked the public to make major sacrifices so far and in the December budget we will be inflicting more pain on them.
Unless we give a lead and show the public that we are not asking them to do something we are not prepared to do ourselves, we will not get out of our current difficulties. Membership of this House is only given to a few. We all have a role to play in giving our people hope and confidence. We must explain clearly to unemployed men and women what we will do to put them back to work. We must also explain to families who are finding it difficult to put food on the table and pay a mortgage how we will assist them and improve their lot. I detect anger and a distinct lack of hope among the public.
Only a few years ago, we were living in a country where everything appeared to be running smoothly and employment was there for everyone who wanted a job. Ireland was considered an example of a most successful country, but we now find ourselves in serious financial difficulty. There is no point in blaming international events alone for our troubles because we contributed in many ways to the problems we are experiencing. It is vital to be honest with the public, admit we made mistakes and clearly outline the measures we intend to take to ensure that we recover.
The establishment of the National Asset Management Agency is an important step in that recovery. It represents a major step in this country’s move towards recovery. When the Minister, Deputy Brian Lenihan, outlined the measure there were those who portrayed it as bailing out banks and developers. The share price was used as an example because it increased within 24 hours, but those who monitor bank shares can see that the price has not changed much. A number of developers have disagreed vehemently with the proposal.
I am confident that the Bill will pass Second Stage, but I appeal to the Minister and the Opposition to be as constructive as possible on Committee Stage. This is the most important measure we will pass. This side of the House does not have a monopoly on wisdom, so it is important for the Opposition to play its part. I appeal to the Minister to be open in considering Opposition amendments. It is in our interests to get it right not just for this generation, but also for the next.
Minister for Finance (Deputy Brian Lenihan): At the outset I would like to thank Deputies for their many considered and useful contributions on Second Stage. I look forward to a constructive and informed discussion on Committee Stage. In the meantime, I will respond as much as possible in the time available to the points raised by Deputies. I agree with Deputy Seán Power that, in considering the Bill on Committee Stage, we must all pool our ideas about how this proposal can be improved.
Before moving on to address some of the specific points made about the Bill, I want to deal with some of the more general issues raised on the National Asset Management Agency and the banking system. We are all agreed that one of the key factors for our economic recovery is a healthy banking system to serve the needs of the wider economy. In the absence of a properly functioning banking system, economic recovery will not happen.
As I have outlined in the past, the Government has taken decisive steps to support the banking system. The overall objective of the Government has been to facilitate the flow of credit to business and to ensure that Ireland is best placed to take advantage of the global economic recovery when it occurs. We have also ensured that the interests of the taxpayer are protected to the maximum possible extent.
The agency builds on the progress made by Government to date and will ensure that we have a banking system that can support economic recovery. The establishment of NAMA removes the riskiest assets from banks’ balance sheets, which frees them to restore the flow of credit to the real economy. Deputy Barrett asked me about the impact of NAMA on Anglo Irish Bank. The impact is to remove risk assets from its balance sheets and to reduce the bank’s loan book quite dramatically. This, in turn, has an implication for the minimum capital ratio the bank will have to hold, which will be much less than its current ratio. Obviously, we will have to work on those figures in consultation with whatever directive the Central Bank and the Financial Regulator makes regarding capital ratios. The establishment of NAMA is the most cost-effective option from the taxpayer’s perspective to ensure a properly functioning banking sector.
While the requirement for a NAMA business plan will not arise until the legislation is in place and a board has been appointed, questions were raised on Second Stage about the nature of the operation which NAMA will carry out. I consider it important that there should be as much clarity as possible on how it is intended to operate, on its organisational structures and on the extent of its impact. Such clarity will inform our debate as the Bill progresses through its various Stages. Therefore, I instructed the interim managing director to draw up a draft business plan setting out how NAMA will carry out its functions and duties. This draft business plan has now been submitted to me and I have arranged for copies to be circulated to all Deputies this evening. I must emphasise that a more detailed business plan will be prepared by the NAMA board once the legislation is in place. This is work in progress but I think it is worth circulating to Members of the House at this stage of the debate.
I want to commend the interim managing director and his small team for the extensive preparatory work done so far, as outlined in this plan. The plan anticipates that a NAMA core team of 30 will be required on establishment to manage the immediate loan valuation and transfer process, and this will rise to a core staff of about 75. It is essential that NAMA moves quickly to establish itself and has the resources immediately available to it to value and transfer the largest loan exposures. I have, therefore, written to the chief executive of the National Treasury Management Agency today asking him to ensure that the necessary staff resources are made available to the interim managing director of NAMA, in accordance with the projections in the draft plan.
The draft business plan outlines the scope of NAMA as set out in my opening Second Stage speech. It is envisaged that NAMA will pay approximately €54 billion for loans with a book value of €77 billion, implying an estimate aggregate discount of 30%. Furthermore, the plan confirms that the estimated recovery in asset prices required for NAMA to break even, taking subordinated debt into account, is 10% over ten years. This is achievable.
Tables in the draft plan provide further breakdowns of the agency’s loan portfolio, geography and cash flow projections. A separate part of the plan outlines how NAMA proposes to value and transfer loans in tranches up to the middle of next year. I have taken the unusual step of releasing this plan in draft form as a confirmation of my intention to ensure to the maximum extent possible transparency and accountability in the way NAMA operates. Another part of the draft plan outlines the extent of the accountability and reporting requirements that will apply to NAMA.
While I have moved early to make this information available, I emphasise that the details on loan books provided in the draft plan are estimates in aggregate form and are based on an assessment of provisional figures provided by the institutions themselves. They will, therefore, be sensitive to assumptions made by institutions regarding those assets that will be designated as eligible and that are liable to be adjusted further as the detailed analysis and due diligence is carried out by NAMA upon the enactment of this Bill. While legislation can be broad in its application, I will have a further opportunity to clarify implementation or limitation conditions through guidelines, should this be necessary, to ensure consistency of application and administrative efficiency in the loan acquisition and management process.
The asset management approach has a proven track record internationally. The establishment of NAMA has been supported by institutions such as the IMF and the ECB as well as by the financial markets. Goldman Sachs welcomed the agency as just the latest in a “series of impressive steps by the Irish Government” to deal with our problems. As recently as last Friday, the European Commissioner for Economic and Monetary Affairs, Joaquín Almunia, said he wanted to see the Dáil pass the legislation establishing the National Asset Management Agency as fast as possible. This clearly qualifies as strong support for the Government’s approach from the European authorities.
I refer to issues raised in the debate. Some Members have continued to argue the case for nationalisation and I have dealt with this repeatedly over the past few months. Total nationalisation is not the panacea that its supporters claim it to be. Apart from the fact that it does not address issues surrounding risky portfolios of assets on the banks’ balance sheets, it has the rather obvious downside of requiring the State to compensate shareholders before putting additional capital into the banks to resolve their capital deficiencies arising out of these impaired assets.
A policy of total nationalisation could impact negatively on financial institutions’ own funding, with wholesale money markets becoming less prepared to lend to an Irish banking sector that has been nationalised. It could impact also on the sovereign’s funding since nationalising the entire banking system could result in Ireland’s sovereign credit rating being downgraded. This would result in increased debt service costs on the national debt, which the country can ill afford when it has many other pressing calls on its scarce resources. In the context of the global funding crisis, these are risks no Government cannot afford to take. However, the Government is not, in principle, opposed to nationalisation where it is the best solution. This was acknowledged by Deputy Ruairi Quinn in a thoughtful contribution that he represented as not being too far from his party’s position, which he clarified as not necessarily being in favour of blanket nationalisation but rather supporting public ownership in the region of
70%, with the banks remaining quoted on the stock market.
This brings me to another claim that has been made, most notably by Deputy Enda Kenny, which is that the Government is unwilling to facilitate consultation or debate on the subject of NAMA. Nothing could be further from the truth. I first announced our intention to establish an agency on 7 April. At that time, I made it clear I was very keen to engage in a proper debate over NAMA in order that the Government could deal with the issues involved as comprehensively as possible. Since then I have engaged in debate on the matter both with the media and, in particular, with Members. I have appeared on two occasions before the Joint Committee on Finance and the Public Service and engaged with members of the committee in a comprehensive discussion on both occasions.
A draft version of the NAMA Bill was published on 30 July, which was almost seven weeks before the formal publication of the Bill in order that Members could engage in a fully informed debate and make considered contributions. I will continue to listen to constructive comments and suggestions until the enactment of the Bill.
Another misplaced claim made during the debate is the legislation represents a bailout for developers. This is just not so. Let us be clear. NAMA is not designed to be, and will not be permitted to operate, in practice as a bailout mechanism for developers who have operated irresponsibly. The amount a borrower owes will not change because of the transfer of a loan from his bank to NAMA. The agency will have a statutory duty to maximise the taxpayer’s return and will, therefore, be expected to use its entire means to this end. The Bill also provides the agency with the wide range of powers it needs to pursue borrowers and enforce security. In some cases, this will mean borrowers’ personal assets will have to be assumed by NAMA and, in such circumstances, I cannot understand how the misconception that the agency will bail out developers continues to run other than pure political mischief making.
Deputy Brian Lenihan: Those, like Deputy Burton, who persist in misrepresenting the Bill in this way will have a heavy burden to bear in the verdict of history because we have serious decisions to take not only as a Government, but as a Parliament and a people, and misleading the people about legislation does not assist us in this task.
Deputy Brian Lenihan: Several Deputies have complained that the valuation is too generous or that there are insufficient safeguards to ensure the banks have to bear an appropriate share of the risks involved but this is not the case. The valuation methodology used to estimate the price paid for the loans must accord with EU guidance. Each loan will be valued in accordance with this methodology, which takes into account both market conditions and long-term economic returns. Long-term economic returns in the valuation process are necessary to achieve the goal of stabilising the financial system and to ensure that it is in a position to support economic recovery. This objective could not be achieved if the banks were forced to accept fire sale prices.
Deputy Bruton commented that the ECB recommends paying the current market value for assets. On the contrary, the bank recommended that we avoid paying too great a premium over the market value, which is quite a different matter. Furthermore, as I stated in my opening contribution, the Governor of the Central Bank and his predecessor have confirmed that the proposed allowance for long-term economic value is not unreasonable or disproportionate. The cash flow produced by NAMA will be sufficient to cover interest payments on the NAMA bonds and operating assets. Details of this are set out in the document I circulated.
Several Members made reference to the increase in the share prices of the two main banks since 16 September as proof that we overpaid for the loans. This is not necessarily the case, as on the day in question share prices for financial institutions around the globe generally increased. It was also the case that the increase in share values was an expression of confidence in the Government’s ability to take the decisive action necessary to deliver a restructured and cleansed banking system that can support economic recovery. The share prices have reduced since.
Many Deputies correctly highlighted the importance of the availability of credit to the wider economy. This is the crucial issue relating to the legislation and I will take into account every improvement to the Bill and the operation of NAMA that can facilitate the extension of credit during the remainder of the debate.
Mortgage lending is supported by a statutory code of conduct, which has been in effect since February. We secured the agreement of the two recapitalised banks, Allied Irish Banks and Bank of Ireland, not to initiate legal proceedings for repossession within 12 months of arrears appearing. This will be complemented by new measures in the revised programme for Government to protect families experiencing difficulty meeting their mortgage repayments.
I reject the scaremongering in which Deputy Gilmore engaged this morning in the House. He said “it was well known” that the banks were waiting for the Bill to pass before moving in a serious way on homeowners in trouble. Well known by whom? What is the evidence for this? Has Deputy Gilmore been briefed on this? Has he concrete information to put on the table or is this scaremongering? At a time of economic recession, sending out a signal to homeowners who have difficulties making their repayments that a massive pounce is being planned on them in the banking system on the enactment of the legislation——
Deputy Brian Lenihan: That is not envisaged and it will not happen. Deputy Gilmore must produce evidence. All the evidence relating to the behaviour of the banks when it comes to repossession points to the contrary.
Deputy Brian Lenihan: Nothing in the NAMA legislation will result in more repossessions of family homes. A robust, statutory-based code of conduct is in place to deal with mortgage repossessions, which I introduced. The revised programme for Government, as the Taoiseach stated during Leaders’ Questions, commits us to enhance protections for mortgage holders who have a genuine problem. It ill becomes any Deputy to engage in such scaremongering for political purposes.
|Ahern, Bertie.||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.|
|Cowen, Brian.||Cregan, John.|
|Cuffe, Ciarán.||Cullen, Martin.|
|Curran, John.||Dempsey, Noel.|
|Devins, Jimmy.||Dooley, Timmy.|
|Fahey, Frank.||Finneran, Michael.|
|Fitzpatrick, Michael.||Fleming, Seán.|
|Flynn, Beverley.||Gogarty, Paul.|
|Gormley, John.||Grealish, Noel.|
|Hanafin, Mary.||Harney, Mary.|
|Haughey, Seán.||Hoctor, Máire.|
|Kelly, Peter.||Kenneally, Brendan.|
|Kennedy, Michael.||Killeen, Tony.|
|Kitt, Michael P.||Kitt, Tom.|
|Lenihan, Brian.||Lowry, Michael.|
|McDaid, James.||McEllistrim, Thomas.|
|McGrath, Mattie.||McGrath, Michael.|
|McGuinness, John.||Mansergh, Martin.|
|Moloney, John.||Mulcahy, Michael.|
|Nolan, M. J.||Ó Fearghaíl, Seán.|
|O’Brien, Darragh.||O’Connor, Charlie.|
|O’Dea, Willie.||O’Flynn, Noel.|
|O’Hanlon, Rory.||O’Keeffe, Batt.|
|O’Keeffe, Edward.||O’Rourke, Mary.|
|O’Sullivan, Christy.||Power, Peter.|
|Power, Seán.||Roche, Dick.|
|Sargent, Trevor.||Scanlon, Eamon.|
|Smith, Brendan.||Treacy, Noel.|
|Wallace, Mary.||White, Mary Alexandra.|
|Allen, Bernard.||Bannon, James.|
|Barrett, Seán.||Behan, Joe.|
|Breen, Pat.||Bruton, Richard.|
|Burton, Joan.||Byrne, Catherine.|
|Carey, Joe.||Connaughton, Paul.|
|Coonan, Noel J.||Costello, Joe.|
|Crawford, Seymour.||Creed, Michael.|
|Creighton, Lucinda.||D’Arcy, Michael.|
|Deasy, John.||Doyle, Andrew.|
|Durkan, Bernard J.||English, Damien.|
|Enright, Olwyn.||Feighan, Frank.|
|Ferris, Martin.||Flanagan, Charles.|
|Flanagan, Terence.||Gilmore, Eamon.|
|Hayes, Brian.||Hayes, Tom.|
|Higgins, Michael D.||Hogan, Phil.|
|Howlin, Brendan.||Kehoe, Paul.|
|Kenny, Enda.||Lee, George.|
|Lynch, Ciarán.||Lynch, Kathleen.|
|McCormack, Pádraic.||McGinley, Dinny.|
|McHugh, Joe.||McManus, Liz.|
|Mitchell, Olivia.||Morgan, Arthur.|
|Neville, Dan.||Noonan, Michael.|
|Ó Caoláin, Caoimhghín.||Ó Snodaigh, Aengus.|
|O’Donnell, Kieran.||O’Dowd, Fergus.|
|O’Keeffe, Jim.||O’Mahony, John.|
|O’Shea, Brian.||O’Sullivan, Jan.|
|O’Sullivan, Maureen.||Penrose, Willie.|
|Perry, John.||Quinn, Ruairí.|
|Rabbitte, Pat.||Reilly, James.|
|Ring, Michael.||Shatter, Alan.|
|Sheahan, Tom.||Sheehan, P. J.|
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|Stagg, Emmet.||Stanton, David.|
|Timmins, Billy.||Tuffy, Joanna.|
|Upton, Mary.||Varadkar, Leo.|
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