Desperate measures

 
 

With the introduction of the Finance Minister’s National Asset Management Agency, Theresa Cummins investigates whether the Government can finally put a halt to the economic downturn.

US President, Barack Obama has said recently that he sees “glimmers of hope” for the American economy, but has stressed that there was still “a lot of work to do.” The American economy is well on its way to recovery with calm assurances from their steadfast President, resolute in his determination at re-establishing confidence in the country.

Resonating Obama’s attempts to restoring trust and hope on an international scale, Finance Minister, Brian Lenihan recently announced an emergency budget which included the establishment of the National Asset Management Agency (NAMA).

This so-called toxic bank will purchase up to €90 billion of decaying property and development loans in a dramatic measure to renovate the banking sector in Ireland. The Government has stressed that not all of these loans are irrecoverable, emphasising that once the market recovers, properties that were used as collateral for these loans will be sold off and losses recuperated.

With the conception of this new management agency, Irish banks which, until now have largely been hiding the extent of their bad debts, will have to disclose this almost guaranteed disturbing information. Analysts reckon that further capital injections from the Government will be requisite, ontop of the €7 billion already injected in both AIB and Bank of Ireland.

Dr Peter Bacon, special advisor to the National Treasury Management Agency, is largely responsible for the creation of NAMA. Bacon, who recently defended his solution to the crisis in a recent interview on Prime Time, “I’m an economist, not a moralist, so let’s deal with economic issues”, is no stranger to both solving and highlighting the financial woes to the Irish economy.

Ironic that that the very chap who advised the Government on how to keep the property boom under control, advice which was to the detriment of our worrying financial condition not heeded, is now being sought after and listened to.

“Unlike Barack Obama’s stalwart plans for recovery, NAMA doesn’t seem to be receiving an overwhelmingly confident response”

Having foreseen and warned against the property bubble more than a decade ago; placing the acclaimed economist at the helm of our beleaguered financial sector should provide us with the much needed confidence for the future of our economy. However unlike Barack Obama’s stalwart plans for recovery, NAMA doesn’t seem to be receiving an overwhelmingly confident response.

Brokers said that the jury was still out on the creation on NAMA, highlighting that it “was a matter of opinion about whether the new assets management agency will be positive or negative.” Credit ratings agency, Moody’s downgraded its ratings on twelve Irish banks after the announcement of the ‘toxic bank’ in the budget.

The rating agencies lack of confidence in the Irish banking system stemmed from their belief of an unrelenting decline in housing prices, and the increased probability of corporate defaults. “We belief that these losses are likely to significantly weaken the capital positions of most Irish banks building societies over the next two years”, Ross Abercromby, lead analyst at Moody’s for Irish banks said in a statement.

Also speaking to Prime Time, Eddie Hobbs, most noted for his Rip off Republic series on RTÉ and largely recognised for his straight talking, candid approach to finance, described the plan as “poxy… but at least it’s a plan.”

Financial commentators and analysts have become unresolved and are symptomatic of taking a ‘wait and see’ approach. The media has repeatedly reported that the bad debts are estimated to be between €80 to €90 billion, which is at best vague and ambiguous.

Speaking in relation to the plan, Mr Lenihan stressed the need to “restore our reputation abroad. We must show the world that our financial system is soundly based and governed by the highest standards of regulation.”

The confidence that Lenihan craves isn’t going to be established on these unclear estimations, nor will it be based on our budget deficit, which is reportedly the worst in the 16 nation euro zone.

Purchasing tens of billions of debt, which the Government has tried to assure us isn’t all bad, and putting our trust in Mr Lenihan, who was voted the second worst Finance Minister in Europe by the Financial Times, the plan seems to be one of crossing our fingers and hoping for the best, but echoing the Cork financial guru “at least it’s a plan!”

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