Why did we guarantee the bond holders?

Royal Hospital Kilmainham
Image by infomatique via Flickr

It occurs to me in reading the broader commentary about NAMA that we, as members of the public, might be missing a trick or two. Which is easy when we’re compelled to look in the wrong direction.

One of the reasons (possible) for the issuing of the guarantee that all would be under written by the Irish state was to ensure that the bond market is not so annoyed with the Irish government. But why you ask would hard headed people across the entirety of the bond market be annoyed at the losses of others in what were privately owned and operated commercial organisations for which we the Irish state had no responsibility?

One reason that occurs to me is that it reduces the likelihood that there will be too much kicking over of the traces on the very light regulatory environment that existed here, “the Wild West” as the Germans termed it, which the state was directly responsible for. And a light regulatory framework is one thing, not even policing and enforcing that framework is another problem that falls at the lap of the Irish government. And it would be for that reason that the bond market might be less than inclined to lend to Ireland Inc. if the feeling was that we as state couldn’t be trusted to run things properly.

NAMA is to some extent the Irish Chewbacca solution; it makes no sense. Except when you invert it all and think of it as a massive Derren Brown scale effort at distraction. (And No Derren Brown did not use the wisdom of crowds or the precision of eejits as it is otherwise known to guess the lottery numbers. He simply put it up there to distract you from other possible solutions). So the operations of NAMA doesn’t have to make sense, because it is the mere existence of NAMA that makes sense for the government as a topic of distraction.

So NAMA is not the only possible solution to our problems but it does appear to make sense for the government, if not for us, when you consider that we talk now about the workings of NAMA but not about what led to it, or what other things might be happening right now that we’re not looking at. After all with NAMA to talk about we’ve less time to talk about unemployment hitting half a million by the end of the year. Or that recruitment of school leavers and graduates has all but ground to a halt.

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6 Responses to Why did we guarantee the bond holders?

  1. Senan says:

    NAMA may not be the ideal solution. But how does the saying go…”doing the wrong thing is bad but doing nothing is worse”. I’m sure there are many highly educated people out there who could sit around a table and bash out another few suggestions (e.g. a Good Bank), but we have to take action now, right now. My main quibble would be with Anglo, why they keep getting massive amounts of move in order the stumble on and on is beyond me.

  2. Diarmuid says:

    I think the ‘distraction’ argument is weak. Nama is not the only solution, but regardless which solution they may have picked you would have the same level of public debate and focus on the detail at the expense of the wider economy. All solutions would have created distraction, so that doesn’t explain why they chose this particular one.

  3. dsullivan says:

    I don’t agree that the need to ‘not do nothing’ as they might say in on the Jersey shore means that we have to do this particular thing. We could just as quickly if not more quickly have taken the other options long before now. If the need was do so something and do it quick then nationalisation could have been done and dusted longer before now.

    I agree there would have been considerable debate on the other solutions too though I’m not sure that nationalisation for example would have caused the same level of debate as more people have grasp that idea pretty quickly. The Good Bank(s) has proved a harder one to explain to journalists and hence to the general public. Both ideas were about in the spring time though, for NAMA we had to wait and wait for the numbers to come up before we went in to any detail. And it’s that we’re fixated by the numbers of NAMA when those numbers are mere guesses/best estimates that I think is the distraction. 57 Billion this and 7 Billion that, that’s the conversation at the moment.

  4. i’m hawking my video as my contribution to the NAMA debate, i hope you don’t mind :-) holbrook

    http://www.youtube.com/watch?v=sxg6c-QuXVE

    I love NAMA

  5. dsullivan says:

    Holbrook, I don’t agree with you but I’m a sucker for a woman in boots.

  6. Des Groome says:

    At the risk of bringing the argument back to an overly basic level, lets step back and view the banks issue as the dilemma it is.

    Light touch governance, irresponsible reckless lending, betting(banking) practices that would ruin a bookie in two sundays pony racing, the cronyism of Irelands boards ( former Blackrock SCT boys and friends of dad only need apply) , the US sub-prime crisis were all coming together at one time. A viewpoint in political circles that building was the only homegrown show in town so lets let it roll on, a decision behind the scenes in Washington that the wall street black jack wheel was about to spin off its axis and needed to be stopped – I am convinced that the Us recession was premeditated; the global effects were unexpected but elements of the crash were let happen for a reason.
    All these factors conspired like a perfect storm in within the Irish economy to leave our banks exposed like the three little pigs houses of straw and wood.
    So- Do we let them fall , as McWilliams has advocated.
    No- our SME sector is too fragile for such a Tsunami. Bank employees as well as everyone else on the dole. The aftermath anyway would be a foreign entrant or two into a beaten captive market and no advantage to customers afterwards.
    The Fg option- sounds bizarre, pointless and would leave us with two or three domestic zombies for the govt to nurse- or wind them down with staff again out on the dole. Their version of a Good Bank would still have staffing, nepotism and governance issues to overcome.
    the next option- NAMA, which I think the ECB told our boys to get on and set up and I would imagine the ECB will have to approve every step along the way. The emotive talk about grand children paying the bill is misguided as we all as home owners have a vested interest in preserving a medium term property notional value-
    where the Govt have gone wrong is in terminology; it is wrong to even use the language of valuation in a market where there is no trade, no current market price;
    If they just said ; NAMA will buy property / bank assets/futures bonds for X and acknowledge these values ARE futures then at least people would feel there is no mlie being peddled.
    For me NAMA is the correct option- but the devil will unfold yet if the conditions and stipulations are subjected to the Irish looseness in regard for rules that pervades the psyche here-
    that psyche is our biggest stumbling block.

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