HEART BEAT:People are being made redundant and losing their homes. There is something wrong here, writes MAURICE NELIGAN
TERENCE, THE Roman author and playwright, wrote in about 200BC “Quot homines tot sententiae” or “there are as many opinions as people”. This certainly appears to be the case with Nama and those trying to understand it.
I have grave misgivings about this concept because I have difficulty in grasping the essential plan; given the fact that its central tenet seems to be founded on little more than guesswork. I mean, of course, the valuation of the troubled assets that are to be taken over. I will be simplistic about this and thus reveal my undoubted ignorance.
Mr A, a developer, borrows a billion or two from various banks and institutions to fund land acquisitions, housing or commercial developments or whatever else he might be involved in constructing.
I have to understand, ab initio, that Mr A is not as other men. He is a property tycoon and has multiple personae and also a different set of rules compared to the rest of us.
He is, as I understand, the spider in the centre of the web of companies he controls. Why he might need a web of companies rather than one big company is beyond my little mind. Maybe a web might be useful in ensnaring the credulous?
I have to ask at this stage if Mr A or the institutions that lent him the money ever stopped for a moment to consider if whatever he was developing might be surplus to requirements.
I ask this because there is a “spin” abroad that we are where we are and let’s move on. It is implied that recriminations are unhelpful and more subtly it is posited that our current plight is nobody’s fault.
We are told ad nauseam that we are a small open economy adrift in the stormy seas of world recession.
While this is partly true, the major share of our woes is down to Messrs A, B, C, etc and the institutions that lent them the money, those who failed to regulate the situation and a government that actively encouraged the bubble with its irresponsible tax breaks.
Well, the bubble burst and Mr A along with many others cannot repay their loans. In this case one of Mr A’s creditors got stroppy and wants his money back. They want a receiver appointed to parts of the web so that they can recover their money. Now, if the other lenders take the same path, the web unravels and the supporting bough breaks;
“When the bough breaks the cradle will fall
Down will come baby and cradle and all”
It now becomes a question of who is left holding the baby.
Now this is the hard bit and the part I don’t understand. If all or most of the web has to be sold to meet the creditor’s demands, they would be sold at values determined by those who would offer for them.
I used to think that was called the “market value”. Now this doesn’t please Mr A and those other creditors who lent him vast sums.
Mr A claims that he can spin the web again given time and the forbearance of the banks. This becomes more interesting.
Some of the banks apparently are willing to lend even more money so that some of the unfinished projects in the group can be completed, and then decanted into a market already awash with similar properties.
I ask myself, and I suggest you ask yourselves, is this our money, that is currently propping up the banks, that is to be used in this farcical venture? The fact that the bubble has burst seems to escape the genii who dreamed this scenario.
The covering waffle and talks of “fire sales” imply that the current market value is not the real worth of these assets.
The rescue chariot of Nama is to sweep in and take such troubles from the banks at a more realistic price which we are told will vary from asset to asset.
The term asset here is a misnomer. Liability is the correct term. We’re told that such valuations will take into account the “long-term economic value” of the acquisitions.
One thing seems certain: Nama will pay more for these questionable products than they are worth now on the open market.
Nama is us and we are going to pay more than they are worth right now in the real world. This benefits the banks, their shareholders and their bond holders. Does it benefit us? It’s hard to see how.
Let’s briefly consider “long- term economic value”.
George Eliot in her novel Middlemarch wrote that “among all forms of mistake, prophecy is the most gratuitous”. This is crystal balls.
Such valuations are guesswork; there is no certainty. Is long term five, 10 or 20 years? Nobody knows. It is likely that it will be a very long time, way beyond the spans postulated, before properties reach the unsustainable values of the past few years.
What is certain is that we will never fill the plethora of hotels or occupy the acres of office space built in the foolish years. Let us not compound our misfortunes by throwing good money after bad.
Meanwhile, back in the courts, small people are being hunted for small loans. People being made redundant stand in clear danger of losing their homes while the unholy trio that begat these problems remain largely untouched.
There is something fiercely wrong here.
- Maurice Neligan is a cardiac surgeon