NAMA, THE LAST STRAW IN GREEN POLITICS

Part of the professional work I undertake in due diligence, at the Lisbon convention there was an economic workshop that Minister Eamon Ryan chaired where I raised the subject of due diligence or lack of, undertaken by financial institutions on development and business loans that will now form a large part of the NAMA or SPV assets.

Financial controllers and business executives undertook ENRON economics in submitting business plans and financial auditing reports to support the widely unrealistic and bloated long term economic value of property. These assumptions were supported by auditing, risk assessment, financial accountancy and private equity advisory firms. In many respects the very same consultancies that are now still employed by the Government in drafting the NAMA legislation.

As with the fable of “the King has no Clothes” when reality finally hit home ENRON was exposed for what it was, it revealed that the business plan was sustained by institutionalized, systematic, and creatively planned accounting fraud, known as the "Enron scandal". That scandal caused the dissolution of the Arthur Andersen accounting firm, yet in Ireland nobody has been held accountable.

In the USA within months senior executives of corporations, financial and auditing companies were in jail, in Ireland it’s a get out of jail pass, golden handshakes, fat pensions and compensation by the taxpayer for deceit, dishonesty and professional incompetence.

More recently the collapse of Bear Stearns in Wall Street, a bank like Anglo Irish that existed for private wealth creation, occurred once again because their internal risk management systems failed.

All these institutions including Anglo Irish, NIB, AIB, BOI employed auditors, risk managers, insurance advisors, asset management professionals and legal advisors to protect their investments. What we have since witnessed is that the entire financial system was based on falsification and deceit, excessive risk taking and shocking standards of risk management.

During the boom years of the Celtic Tiger we witnessed what could be called criminal behavior by evaluators, bankers, land surveyors, financial advisors, risk assessors, all addicted to institutionalized greed. Nobody has been held accountable for the failure of the financial regulator, the central bank or the Government to control our economy. Yet with NAMA one thing is certain the taxpayer is now accountable.

The unsustainable business model of the ‘Celtic Tiger’ and total lack of supervision by the financial sector created the conditions for the catastrophic collapse of the economy we now see. We have learnt in the meantime how the banks were interconnected, did business, and still do, with the same advisory firms, we know they were sustained with plastid Government support attempting to store up confidence in the banking sector and Government Policy. Anyone who spoke out about financial mismanagement was labeled a loony and encouraged even by our last Taoiseach to commit suicide.

The consequence of this mismanagement we are now lead to believe is that the banks have become to big to fail. Why this was allowed to occur is unclear. After all, both the financial regulator and the Central Bank had or should have had ample information on the stability of the banks as well as the legal ability and obligation to prevent destabilising banking.

In the financial crisis we face, the strength of a bank’s balance sheet is of little consequence. What matters is the explicit or implicit guarantee provided by the state to the banks to back up their assets and provide liquidity. Therefore, the size of the state relative to the size of the banks becomes a crucial factor.

Can the state now afford to save all the banking institutions, today Bank of Ireland posted a pre-tax loss of €979 million for the six months to September 30 compared with profit of 647 million euros during the equivalent period in 2008.

Bank of Ireland said loan impairment charges in the six months were 1.8 billion euros, up from 267 million euros a year ago. The bank has forecast loan impairments of 6.9 billion euros in the three years to March 2011.

Least we forget just last February Bank of Ireland’s estimates for loan impairment charges were calculated at €3.8 billion to circa €4.5 billion for the same period up to March 2011. In the six months since loan impairment has increased by an astonishing €3billion. In the same period both Bank of Ireland and Allied Irish Bank received €7 billion in state aid from the Irish taxpayer.

What we are seeing is the taxpayer through the state investing money in a financial black hole, a black hole that Anglo Irish Bank’s transfer of €28 billion in loans to NAMA will suck us all in.

It is clear that the state is not in any position to attempt to save Anglo Irish Bank. Still the Government pursues this agenda. They have not addressed the failure of the banking system and are gambling for a resurrection on the backs of a NAMA business plan that would not pass the most basic risk management test. A business plan, that must be pointed out is based on continued economic growth over the next ten years.

What is most shocking of all about this is the acceptance and willingness of the Green Party to go along with this fiasco. A fitting satire to peak everything and runaway credit.

What bothers me even more is that the Green Party credits itself as the most transparent and democratic political party in the state. Yet just days after the NAMA convention the Government releases the now discredited NAMA business plan, which would have been in existence well before the convention, followed a week later with revisions to the NAMA legislation with the inclusion of a SPV that will be controlled by private interests but paid for by public monies, which also must surely have been discussed at cabinet by the government.

I find it unbelievable that the Green Party Ministers were not aware of either nor that they wouldn’t have discussed them at Cabinet table with their colleagues. After all isn’t this what collective cabinet responsibility is all about! A bit like how the green parliamentary party is supposed to work as well. If they were not informed or consulted this surely must be the last straw for the current Government.

Of course none of this would have happened if the last Government had acted prudently in the first place, the economy regardless of the global financial crisis would be in a much better shape.

Looking back I cannot escape the feeling that the board and directors of the Central Bank and the financial regulator, along with senior officials there knew what was happening. Similarly, all government ministers, along with senior bureaucrats in the ministries of finance, revenue commissioners and office of the Taoiseach had to have known.