The price of everything and the value of nothing

The last day of the legal term sees the builder’s bail out hovering on the precipice. The refusal of examinership to Liam Carroll’s group of companies will strengthen the arm of ACC Rabobank in their campaign to hold on their AAA credit status and muscle the government into a bank buy back while rescuing some liquidity for themselves. Ironically almost 20 years ago the Dail was recalled from a summer recess to put through examinership laws to rescue then FF supporter Larry Goodman. Now another recall is on the cards to bailout more FF supporters, the top 50 developers in the country and their lending institutions through NAMA. The best endorsement for NAMA that explains it to most people was the Green Party description of it as "the best least worse option". Make no m,istake about it the Dail will be back early as the inertia wears down what's left of the specualtors bubble.

Basically it works like this. Bank sells bad (toxic) loans to NAMA and is paid in bonds at a reduced price (discount). NAMA gets to work through these loans with the developer. The theory is that the tax payer won’t be hit because the developer will then be able to draw down money from the bank to complete construction while paying off NAMA. In theory at the end of the day the government thinks it will get back whatever it puts in.

But will this work in practise? When tribunals were being set up we heard that they would raise cash because findings would be actionable by Revenue. The problem was that those with a vested interest trot off to the High Court at the drop of a hat to protect their interests. Costs soared and the tax payer was hit. A developer may well go to the High Court to challenge a move by NAMA or indeed the very legislation that sets up NAMA.

What’s often forgotten is that many of the bad loans handed out are in relation to foreign property investments. I see no value to our economy in bailing out these however the reality is that with many of these in the north or Britain, they have more potential for recovery on the loans than many of the Irish properties destined for NAMA. As Jack O’Connor asks what will be the social role for NAMA in housing? Will the residential property be used to house those on the housing list by the state? My feeling on the matter is that with other econmies set to enter recovery before Ireland’s emigration will increase further reducing the demand for housing and depressing prices and demand. As a consequence to remove the overhang would it not make sense for the state to take up empty residential units as part of the charge to developers within the NAMA basket?
What about completed developments where no purchaser is interested? What should be done with the entirely speculative properties that were built and will not be filled? In the 19th century free market liberal economics meant that Ireland had deserted villages after the famine. Has our economic thinking moved on in 160 years? I doubt it!
My biggest concern with NAMA is in relation to the values put on properties. Which values determine the value on which the discount is established? Are these values the ones when NAMA was set up or when the market was at its peak or when the loans were taken out? I’m worried at what may ensue behind closed doors when it comes to the negotiations to set values. Already we've seen Carroll been accused by the judge of guilding the lily when it comes to values which he claimed were independently established. Can you trust any of these developers who specualted on sentiment as if it was hard currency and how can you protect the taxpayer at the same time?
Either way the tax payer will either give the developer a soft deal and have to compensate the banks or else bail out the banks and effectively re-ignite property speculation based on a tax payer subsidised depression of property prices. Heads they win, tails we lose!

Road to Oz paved with best intentions

Last night’s Late Late show was the most depressing I’ve watched in sometime. Don’t get me wrong my only criticism of is of one topic in particular, one I never thought I’d see again and that’s emigration. On a human level I have huge sympathies for the 20 something’s that Pat Kenny interviewed who sat in the front row left with no alternative but to go abroad for work. Having been part of a similar generation 20 years ago faced with the same likelihood, the word emigration brings an empty feeling to my gut. To be fair one or two of the guests may well have gone to Australia anyway for a year out in search of downtime, fair enough I’ve no problem with that either. My interest in the matter is the overt message that there is little work for young people now in Ireland, especially if you’re in construction so go to where the work is. Sadly emigration, even in the limited options now available, is where these young Irish now see their future, and that is surely the biggest failing of all of the mistakes of this government.

In the context of the present world economy there’s few places where there isn’t a recession. Australia seems to be the obvious place for most people. Last July I met a parent of a former pupil and when I enquired as to how he was I was told that he had lost his job in an architect’s office. I sympathised and said I hoped it wouldn’t be a case that he’d have to emigrate as there weren’t too many countries where there may be a need for architects other than Australia. His mother then went on to tell me that if nothing came up he was going out in August which he eventually did. Sad to relate that he’s not the only one going south and that he won’t be the last.
I can remember Gay Byrne telling us day after day 25 years ago that the country was “banjaxed” and that the last one leaving should put out the lights. It’s easy to say but the effect of those words on a generation of young people is damaging. We now know that the country wasn’t banjaxed and that money was stashed away from revenue in a black hole. When unions pointed this out they were told that there was no black hole, no money leaving the country for the Isle of Man, Channel Islands or Cayman. Now we know much better. Just as we have another symptom of the 1980’s back in the form of emigration I wonder has tax evasion returned too? I note that Ryanair are opening new routes to Spain from Knock and I wonder how so many people in the 2 countries appear to have so much money to support such a service when both economies are in difficulty. Property over there is much cheaper as they followed policies similar to our own government.
The reality is that emigrants from Ireland may find it harder to get into the US due to security considerations and the UK and Europe may be no better than here as these economies are in recession also. Some people call it the confidence to spend, others call it reluctance to pay now but whatever the reason no one wants to buy and that’s a huge problem in the economy. But if money came out from under the bed would it not be economically more productive? This is the rainy day that the wealth should have been kept for. I know that the sustainability means you cannot keep building houses but if school buildings were constructed, better insulation installed in houses I, like Eamon Gilmore, believe far fewer people would have to emigrate. Would it not be more productive to our economy to have these young people here than abroad, returning only at Christmas time?
RTE used to run a regular feature at Christmas where Jim Fahy would go to Knock Airport to report on the return of emigrants from Mayo to London after the Christmas break. No stronger image existed of a failed right wing policy. 1 million people emigrated between 1921 and the 1991. Jim is still on the payroll of RTE, what’s the bet he’ll be back in Knock Airport next year? With no change in direction I think it’s a likelihood.