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NAMA is bailout for the greediest and most corrupt – Ó Caoláin

17 September, 2009 - by Caoimhghín Ó Caoláin TD


Sinn Féin Dáil leader Caoimhghín Ó Caoláin TD has described NAMA as a “bailout for the greediest and the most corrupt in Irish society”. He said the biggest losers would be the unemployed, ordinary mortgage holders and the least well off who will be hit by savage Budget cuts. He called for nationalisation of the main banks and the development of a State bank.

Speaking in the Dáil, Deputy Ó Caoláin said:

“There is no doubt whatsoever about who Fianna Fáil and the Greens are serving with this rotten Bill. It is a bailout for the greediest and the most corrupt in Irish society – the bankers and the speculators whose boundless avarice has devastated the Irish economy.

“Throughout the Celtic Tigers years, Fianna Fáil-led Governments pampered this elite group. They allowed them to benefit from massive tax breaks at unknown cost to the State. They allowed them to determine the State’s housing policy – a policy which was no policy but to let the market drive everything. And boy did that market drive. It drove property prices to unreal and unsustainable levels.

“It drove a frenzy of greed for profitable property, inducing many who could not afford to do so, to borrow to buy in the grossly inflated market. It drove debt to levels previously unknown in this country. It was fuelled by cheap loans supplied by a banking system corrupted by the culture of greed that saw massive salaries, bonuses and perks lavished at all senior levels in the financial institutions. And finally the locomotive was driven into a wall and we are now left to deal with the train wreck that is the Irish economy.

“Who are the biggest losers in all of this? Not the bankers and the property speculators who did the crime because they will never do the time. Not the politicians who facilitated them because no-one in Fianna Fáil or the PDs and now the Green Party ever admit any responsibility for anything and they are never made to pay the price for their disastrous policies and disastrous management.

“No, the real losers in all of this are over 400,000 unemployed people in this State, they are the families saddled with massive mortgages, many of whom are being evicted from their homes, they are the people who never had the chance of a decent home during the Celtic Tiger years, they are the weaker sections of the community who are about to be punished most by the savage Budget cuts now in preparation.”

Setting out Sinn Féin’s proposals to address the banking crisis, Deputy Ó Caolain said:

“Sinn Féin believes the only way to deal with the current crisis is to nationalise the two main banks, AIB and BoI, with the potential of turning these two banks into a state bank. This will offer far greater security for the taxpayer. Bad loans can be dealt with in the context of nationalisation and the state can make informed decisions about whether these loans should be foreclosed or managed. We may need to set up a bad bank to deal with the toxic loans within the nationalised system. The government can then decide on a process of recapitalization and restructuring, and deliver the management control that will ensure resumed lending.

“The restructured banking sector envisaged by Sinn Féin goes far beyond just restoring normality to the system. There was nothing normal about a sector that systematically overcharged customers, was complicit in tax evasion and routinely withdrew access to financial services from working class and rural areas because of profit pursuit. As well as intense regulation of the sector, Sinn Féin wants to see a banking system that contributes to the greater good of an economy that serves society as a whole. We also want to see all those who participated in and encouraged the practices that brought about the current crisis held to account and criminal convictions pursued.

“Nationalisation is preferable to repeated recapitalisation, which is excessively costly for the taxpayer yet leaves the government with no real say over how those banks are run. It also deals with any potential losses that could be incurred by the taxpayer, having left the banks in private lands and bought the bad loans off their balance sheets.

“If recapitalisation of a state bank or the nationalised banks is required this could be funded through national bonds which (unlike bank bonds) would be guaranteed. EBS, Irish Nationwide and Irish Life and Permanent must be examined to see if they can function with recapitalisation and the State taking a stake alone or need to have their business wound up and/or transferred to the other two banks.” ENDS

Full text of Deputy Ó Caoláin’s speech follows:

National Asset Management Agency Bill 2009

Caoimhghín Ó Caoláin TD, Sinn Féin Dáil leader

I want to begin by urging the Fianna Fáil/Green Government to do its duty to the people and to make a commitment here and now that if this legislation is passed by the Houses of the Oireachtas it will support a Petition to the President under Article 27 of the Constitution to put the NAMA Bill before the people in a referendum.

by the Houses of the Oireachtas if it “contains a proposal of such national importance that the will of the people thereon ought to be ascertained”. If ever there was such a Bill then this is definitely it.

So here now is the real challenge to Fianna Fáil backbenchers and the Green Party. If the Government will not put this Bill to the people and if you, the backbenchers and the Greens, are as exercised as you claim to be about this Bill then go to the country – either in a referendum on NAMA or pull the plug on this disgraceful, discredited and bankrupt Government and allow the people to vote in a General Election.

The people are watching this debate and they are watching how those they elect are serving them – or if they are serving them at all.

But there is no doubt whatsoever about who Fianna Fáil and the Greens are serving with this rotten Bill. It is a bailout for the greediest and the most corrupt in Irish society – the bankers and the speculators whose boundless avarice has devastated the Irish economy.

Throughout the Celtic Tigers years, Fianna Fáil-led Governments pampered this elite group. They allowed them to benefit from massive tax breaks at unknown cost to the State. They allowed them to determine the State’s housing policy – a policy which was no policy but to let the market drive everything. And boy did that market drive. It drove property prices to unreal and unsustainable levels.

It drove a frenzy of greed for profitable property, inducing many who could not afford to do so, to borrow to buy in the grossly inflated market. It drove debt to levels previously unknown in this country.

It was fuelled by cheap loans supplied by a banking system corrupted by the culture of greed that saw massive salaries, bonuses and perks lavished at all senior levels in the financial institutions.

And finally the locomotive was driven into a wall and we are now left to deal with the train wreck that is the Irish economy.

Who are the biggest losers in all of this? Not the bankers and the property speculators who did the crime because they will never do the time. Not the politicians who facilitated them because no-one in Fianna Fáil or the PDs and now the Green Party ever admit any responsibility for anything and they are never made to pay the price for their disastrous policies and disastrous management.

No, the real losers in all of this are over 400,000 unemployed people in this State, they are the families saddled with massive mortgages, many of whom are being evicted from their homes, they are the people who never had the chance of a decent home during the Celtic Tiger years, they are the weaker sections of the community who are about to be punished most by the savage Budget cuts now in preparation.
All of this need not have happened. There were many of us, including Sinn Féin, who urged a different direction. Trade unionists, people in the community and voluntary sector, other parties of the left, economists with a social conscience urged policies based on the principle of equality and driven by need, not greed.

Over a decade ago, in November 1998, in our Pre-Budget Submission, we in Sinn Féin pointed out that the banks here enjoyed a return on their equity that was double the European average, making them among the most profitable banks in the industrialised world.

We said that ultimately the banks should be nationalised so that the Irish people would be the true beneficiaries. We also proposed an increase in Corporation Tax for Irish retail banks with resulting tax funds earmarked for community and local development projects in the most disadvantaged areas throughout the State.

Of course, instead of this, we saw bank profits continuing to soar, a belated, limited and short-lived bank levy, successive banking scandals which ripped off the customers and the taxpayers and, as we now know, collusion between the banks and the property speculators as they inflated the property bubble.

Now the same corporate criminals are to be bailed out by this Government using the people’s money. That’s what NAMA is in a nutshell. It is supposed to address the crisis caused by a corrupt system but NAMA itself may well turn out to be the source of the next decade’s tribunals.

Higher taxes are coming, something the establishment parties have railed against for years - but they won't be to pay for better public services. They will be disappearing into the NAMA black hole created by a Government refusing to take the obvious step of nationalisation to address the banking problem.

The basic concept of NAMA is flawed and this legislation to introduce it is flawed through and through.

The focus point for most commentators has been the price NAMA will pay for toxic loans it transfers from the banks onto the taxpayers' balance sheet. This is the argument around what discount NAMA should get on the €77 billion worth of bad loans on the banks' balance sheets.

Will the Minister advise the House how much of that €77 billion was used in the actual purchase of sites and land banks and employed in actual development works? In other words how much of this €77 billion is accrued unpaid interest?

The legislation says that for these loans NAMA will not pay current market value - what would be repaid to the banks if the properties the loans are on were sold immediately. Instead it will come up with estimates based on 'long-term economic value'. The moves by ACC Bank against the developer Liam Carroll have actually done the Irish taxpayer a huge service. After being dragged to the courts, Carroll had to admit that if forced to repay his loans he would only be able to repay a quarter of their worth. That is based on the fire sale of his properties at their current market value.

Whatever price is paid for the bad loans, risk will transfer from shareholders and creditors to the taxpayer. This transfer of risk creates a real danger of 'moral hazard' in the future - that is, the banks engaging in risky lending behaviour because there are no consequences.

NAMA is incapable of meeting the twin objectives of achieving the best value for the taxpayer and exposing the taxpayer to the least risk possible. The debt to which NAMA is exposing the taxpayer is €54 billion - a third of our GDP, and that’s before we re-capitalise. And make no mistake about it these financial institutions will need to be recapitalized.

The Irish taxpayers’ expense far exceeds the bank-related debt taken on by Sweden in its bad loan management in the '90s - 8% of its GDP. This will have implications for our sovereign credit rating - we have already been downgraded by several ratings agencies - and will incur increased debt servicing costs, potentially in the region of billions annually.

This legislation contains numerous problems. These include a reliance on the banks acting in 'good faith' to give all the information on the loans to NAMA. The Minister for Finance is to have sole power to appoint NAMA board members. NAMA will be empowered to 'work with developers' to finish projects, potentially lending them taxpayers' money to do so. NAMA will also have compulsory purchase order powers to help developers complete projects if there are so-called 'ransom strips' or contested land in the way. Power is given to the Minister for Finance to overturn 'independent' valuations of loans made by NAMA.

And then there are the operational concerns. NAMA won't have the expertise to reclaim debts, as it is not used to working in this sphere and the staff it recruits may still be loyal to their former bank employers. There is the prospect of developers’ loans being nursed for decades while ordinary loan-holders are forced to pay back their debts or face repossession. NAMA will be another huge Government cost at a time when other organisations of significant public importance are being amalgamated or abolished. As for the notion that a levy will be introduced on the banks if NAMA makes a shortfall - we don't know how a 'shortfall' will be defined, much less what the levy would be.

The Government has put forward NAMA as an alternative to nationalisation but almost all commentators are agreed that even after NAMA, nationalisation might still be the outcome. That is because even after the loans are taken off the books of the banks, there is nothing to guarantee against more loans becoming impaired as interest rates increase. Further liquidity problems may arise, so the State will go down the route of equity capital shares that may be so large that banks are nationalised by proxy.

The Government claims that cleaning out the banks via NAMA will bring about a return to normal bank practice and lending. We are told we need NAMA for the economy to return to normal and anybody anti-NAMA is either politically and economically naïve, anti-patriotic, or both. But this rests on the assumption that private bankers are committed to restoring our economy through providing credit and that they will place this above the interests of bank shareholders. Will banks lend when they manage to get their hands on cash via the NAMA-issued transfer bonds?

A code of conduct for banks covered under the State guarantee scheme on lending to small and medium enterprises was published by the Financial Regulator last February and took effect in March - but SMEs say the banks continue to deny loans and credit.

It's not certain what 'normal' is when it comes to banks' lending practices, but it is certain that banks do not fulfill the role of public investment. Historically banks lend too much and too easily in booms and lend too little and too cautiously in recessions.

My colleague Sinn Féin Finance spokesperson Arthur Morgan has rightly asked where is the NAMA for ordinary people? When homes and small businesses are being repossessed the length and breadth of the state, when people are facing negative equity and economic hardship, the Government can stand over bailing out banks and developers alone.

The Department of Finance's Guide to NAMA exposes the fundamentally flawed thinking behind NAMA. Frequently Asked Question no. 2 reads: "How can you justify this further bail-out of the banks for assets and not prevent banks from increasing mortgage rates?"

The answer:
"It is true that the banks in most instances will not be paid the current market value but will be paid a price which is in accordance with the long-term economic value of each asset. With regard to mortgage rates, the interest rates reflect commercial market realities as banks must pay more to access funds in wholesale retail markets. The Government has no role to play in the commercial day-to-day operation of banks here and believes that it is important that the banking sector has a market presence and operates within market discipline and constraints."

Surely if banks were operating in normal market conditions with discipline and constraints they would not be under a blanket state guarantee and in the middle of shifting all their bad loans off their books onto the taxpayers' heads at a bargain price for themselves?

One of the most incredible aspects of NAMA is that it is outsourcing the property management aspect to private development firms. Had it been used as a property management company, the State could have used land seized on defaulted loans for vital infrastructure, social housing provision or tourism development.
We now have the crazy situation where people throughout the country are sitting in homes and business premises in negative equity, and worse, are being evicted as their property is repossessed. The property managed by NAMA should be available to local authorities to house people evicted as a result of banks moving against them. However, the NAMA-owned property, paid for by taxpayers, is to be managed by private development companies - tenders have already been put out to attract such companies. This revelation is highly suspicious and will lead many to believe that the taxpayer is again being deceived and robbed by the Government, banks and developers.

Sinn Féin believes the only way to deal with the current crisis is to nationalise the two main banks, AIB and BoI, with the potential of turning these two banks into a state bank. This will offer far greater security for the taxpayer. Bad loans can be dealt with in the context of nationalisation and the state can make informed decisions about whether these loans should be foreclosed or managed. We may need to set up a bad bank to deal with the toxic loans within the nationalised system. The government can then decide on a process of recapitalization and restructuring, and deliver the management control that will ensure resumed lending.

The current upheaval in banking will undoubtedly have an impact on the staffing numbers at the banks. While a clear-out of those at the highest levels of the banks whose reckless mismanagement brought about the current banking crisis is required, Sinn Féin recognizes that the vast majority of bank employees played no role in the corruption and bad management that pervaded the sector. The Government should work with the IBOA and other trade unions representing these workers to ensure the retention of the maximum possible number of jobs in banking and to ensure that employees who lose their jobs receive proper redundancy packages and the opportunity to retrain.

The restructured banking sector envisaged by Sinn Féin goes far beyond just restoring normality to the system. There was nothing normal about a sector that systematically overcharged customers, was complicit in tax evasion and routinely withdrew access to financial services from working class and rural areas because of profit pursuit. As well as intense regulation of the sector, Sinn Féin wants to see a banking system that contributes to the greater good of an economy that serves society as a whole. We also want to see all those who participated in and encouraged the practices that brought about the current crisis held to account and criminal convictions pursued.

Nationalisation is preferable to repeated recapitalisation, which is excessively costly for the taxpayer yet leaves the government with no real say over how those banks are run. It also deals with any potential losses that could be incurred by the taxpayer, having left the banks in private lands and bought the bad loans off their balance sheets.

If recapitalisation of a state bank or the nationalised banks is required this could be funded through national bonds which (unlike bank bonds) would be guaranteed. EBS, Irish Nationwide and Irish Life and Permanent must be examined to see if they can function with recapitalisation and the State taking a stake alone or need to have their business wound up and/or transferred to the other two banks.

The issue of ordinary bank shareholders is a sensitive matter. While many of these shareholders benefited quite well during the boom period for the banks, many reinvested dividends in order to secure their future and have lost much of their pensions. However, the interests of the taxpayer/public shareholders cannot be held hostage to the interests of private shareholders. The most appropriate way to protect vulnerable shareholders/pensioners is to ensure that no cuts take place to State pensions or other social protections and that the State pension is increased. In doing so you protect equally those who have lost life savings through risky investments and those who never had the money to make investments or build up a private pension in the first place.

Sinn Féin opposed the Financial Measures (Miscellaneous Provisions) Bill 2009 which sought to grant the Minister for Finance the power to extend the guarantee beyond 2010. While other states ran guarantees for longer while securing their banking systems, none had the extensive guarantee with the lack of appropriate conditions that we have. A blanket guarantee is not the way forward for the banking system.

We believe that the Public Accounts Committee should be tasked with carrying out a full investigation of malpractice in the Irish banking system over the last decade. Its findings should inform better regulation of the banking sector. Malpractice and even criminality by the banks led to this crisis. Yet there have been no arrests, no fines, no admissions or findings of guilt. All those responsible must be investigated and prosecuted where the evidence warrants.

The Minister for Justice must disclose to the Dáil if there are current investigations being undertaken by either Gardaí or the Criminal Asset Bureau and the public must be kept informed of criminal proceedings being taken against those guilty of corporate malpractice. Those at the highest level of the banks over the last number of years and suspected of culpability in mismanagement and fraud must be removed from their positions and new management installed in the nationalised banks.
Other measures should include:

Whistleblowers legislation to cover workers in the financial services and banking sectors.

Intensify regulation of the banking sector and make it independent.

Enhance the role of credit unions through reform of legislation to allow them to expand their work as community-based not-for-profit services supporting social and economic development.

Legislate for the right to a bank account, as has been done in the Netherlands, France and other states, to enable people without a bank account to open an account at a financial institution of their choice.

Enable An Post to provide basic banking services, including a basic bank account. Basic bank accounts are simple, low cost, 'no frills' current accounts designed for those who are financially excluded.

Provide greater support to MABS to deal with the increase in personal debt and those seeking help in addressing personal financial crises.

Emergency action on banking is required. But it is emergency action to rescue the peoples' economy, not a rescue for the bankers and developers who have devastated it. Providing fresh capital is only part of the solution. Even more important is providing new leadership at the banks, leadership which puts the public interest first. We need a banking system that serves the people.

NAMA has nothing to do with improving Irish society. The ultimate point of it is to socialize debt and privatize profit. This Bill should be rejected. This Government should be rejected. Let the people have their say.

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