Karl Whelan is still fighting the good fight re Nama, the single biggest potential drain on taxpayers for many years to come. Smart Taxes has supported rapid nationalisation (and re privatisation) of the main banks as soon as the depth of their property loans exposure became public. The government persisted in assuming the best of all possible recoverable loans outcomes and the most helpful of ECB lending policies. Neither has come to pass. Karl Whelan wearily raises the question again, should the bondholders not contribute to resolving the crisis they helped create rather than placing the entire burden on the taxpayer and citizen.?
…This isn’t to say that a NAMA vehicle shouldn’t have been part of the solution: I advocated prior to Peter Bacon’s report that an asset management agency should be part of a comprehensive solution. At this point, it will be interesting to see in the end how different an outcome we get from the one I proposed last Spring and if it’s not so different, whether the government’s policy in the interim period will be seen as the dithering of officials in denial or an inspired period of delay to allow some breathing space to deal with the problem.
One shift in my thinking since last Spring is that the size of loan losses is now clearly large enough to warrant putting the banks through a resolution process and negotiating with bondholders prior to using state funds to recapitalise. In particular, it is worth noting that the covered banks have about €10 billion in outstanding subordinated bonds (€8 billion of which is accounted for by AIB and BoI).
Without doubt, our usual Bond friendly commenters will tell us that any subordinated bondholders losing money would lead to financial ruination for every Irish man, woman and child. However, given that the European Commission has been taking a hardline stance on the idea of state funds being used to compensate subordinated bondholders (see here and here) it is hard to see how this position can really be justified on practical or moral grounds. (link to article)
