I don’t understand the proposed National Asset Management Agency. I have listened carefully to Finance Minister Brian Lenihan and his chief adviser, Peter Bacon. I have read all the news reports. I have gone online to read background information on the theory and practice of bad banks and toxic debts.
And still I just don’t get it.
I understand that we have a problem with our economy. I understand that 100,000 small and medium-sized enterprises, employing 400,000 people, can’t get credit from our banks. I understand that the reason that they can’t get the credit is that our banks have huge liabilities (risky loans ) on their books and international banks won’t lend Irish banks their money because of these liabilities. I understand that if our banks can’t lend to our small and medium-sized enterprises then some will go out of business, others will reduce output, and in both cases more jobs will be lost.
But I thought that the bank guarantee scheme agreed last October was going to provide the necessary support to our banks to enable them to borrow on the international financial markets. I thought that the recapitalisation scheme announced in December would provide our banks with the necessary capital to lend to Irish business.
Yet, since the start of 2009, 1,000 jobs have been lost every single day. Unemployment is now at 11 per cent and rising. That’s less people earning wages, less people spending money, less people paying taxes (PAYE and VAT ), and more people claiming social welfare.
All of this means less money for the Government to spend on providing public services and growing the economy. This is why, in his Budget speech last month, Brian Lenihan announced €4.5 billion of spending cuts and tax hikes.
But then, after outlining who was to pay more tax and who was to get less benefits the minister announces a National Asset Management Agency.
Minister Lenihan said that the Government is going to set up a new bank (NAMA ) and that, using taxpayers’ money, they will buy all of the risky loans from Irish banks. In turn, international banks will start lending to our banks again, who will start lending to small and medium-sized businesses.
While he’s not completely sure, he estimates that there may be as much as €90 billion worth of these risky loans to be bought up. He tells us that NAMA will buy these loans at a discount and either attempt to make the loans good or sell them on to financial speculators at a further reduced rate.
And this is what I don’t understand. Encouraged for the last 20 years by Fianna Fáil and Fine Gael tax incentives, reckless developers borrowed huge sums of money from reckless bankers. Their collective behaviour is one of the causes of our recession. Thousands of people lose their jobs. And the Government announces a scheme that lets the developers and the bankers off the hook while asking the taxpayer to foot the bill.
And the worst thing is that there is no guarantee that Minister Lenihan’s new plan will work. In fact, some economists think it may bankrupt the state.
Can this Government really get any worse?