Morgan Kelly has it right when it comes to the Irish bank bondholders in his latest article in the Irish Times. But it is a bit radical in terms of an orderly resolution of the property sector’s collapse. I do not think we need an uncontrolled fire sale of the entire Irish Banks property portfolio at this time of incipient panic. The NAMA solution can work IF the Irish banks are nationalised, AND the property portfolio is written down to its true 25% fraction of book value, AND the bondholders get a skinhead haircut.
A far more efficient and cheaper alternative to Nama is to copy what Barack Obama did with General Motors, and transfer ownership of Irish banks to their bond holders. In this way we can achieve well capitalised banks, run without political interference, at minimal cost to taxpayers.
By converting a portion of Allies Irish Banks’ approximately €40 billion of bonds, and Bank of Ireland’s €50 billion, into shares, each institution can be recapitalised. Transferring ownership to bond holders will not cost the taxpayer a cent and will avoid interminable legal battles over the transfer of assets to Nama. Link to full article
It is a pity as my informants tell me, Morgan Kelly so set against looking at the fundamental cause of the property bubble i.e. the rise in un-taxed, free lunch land values in this country.
