Saturday 23 November 2019

If Nama cannot realise our goals it should be replaced

The 'bad bank' is engaged in dangerous games of market manipulation and we are left with the tab, says James Fitzsimons

Nama chairman Frank Daly wants to encourage consumers to buy residential property on the basis that the price has found its floor. This is dangerous market manipulation. Brian Lenihan did something similar when he gave the bank guarantee in September 2008, and look where that got us. Only private funds should be allowed to take such risks with their own assets. Nama is playing with taxpayers' money and it needs to be reeled in.

If Nama can protect prospective buyers against market losses, why can't it use these resources to help the 50,000 people with residential mortgage arrears? According to the Central Bank, 63,000 mortgages have been restructured now. Flexibility is not the same as moral hazard. It's not the homeowner's fault that the economy collapsed, or that the banks cannot cope with these hiccups to their plans.

Wise consumers should buy when they are ready. They should not allow Nama to manipulate them. What Nama is doing is for Nama's benefit. If prices continue to fall, its losses will be higher and buyers will ultimately be better off.

This meddlesome interference by Nama will prevent property markets from reaching sustainable equilibrium. Prices for some residential properties have fallen below what they could achieve. Many properties have not.

Market manipulation that creates unrealistic prices should not be allowed. If the consumer cannot afford to buy at current prices then he or she should not buy. If the price is too low, investors will help to restore equilibrium. Should the Irish lose their appetite for property, foreign buyers will pick up the slack.

It's time that prices fell to levels that allow consumers to buy, without beggaring themselves just to put a roof over their heads. If the general public has learned anything over the last three years it should be that the Government and its State agencies do not have its best interests at heart.

Mr Daly wants to stop the fall in commercial property prices too. Nama is clearly having trouble selling off its property portfolio. It would provide soft options for new investors because it has an open chequebook drawn on the taxpayer. Maybe this is the only way Nama can get what it needs for its assets. It is making us into a nation of gamblers. If Nama cannot realise our goals, it should be replaced.

It should pursue those who created this mess and force them to make good the losses. Market manipulation and interference could sink us further into the red. This is an area for venture capitalists and not a government agency funded by the taxpayer. Nama would not be viable if it could not turn the taxpayer on and off like a tap.

Pension funds are among the sources that Mr Daly would tap into to facilitate sales of commercial property in Nama. If the Government is a party to this proposal the 0.6 per cent levy that is being imposed on private pension schemes might only be the start of a raid on private wealth. It makes no sense that a government agency should seek to manipulate financial markets when even the banks cannot support its proposals.

The system is not perfect, but if Government intervention is to be allowed, in the public interest, it needs to be carried out by competent and experienced experts, which are scarce.

Based on numerous reports, the Government and its public servants lack the qualifications and experience to intervene directly in this way. We have already paid a fortune to countless experts to come up with solutions and yet there are none. There is no end in sight to the resources that the public sector would consume to preserve the status quo.

Nama wants to share the risk of negative equity with the buyer so that it can create a floor price in a depressed property market. It will "encourage" pension funds to facilitate this. We know that there are no significant funds in the public service. So any risk will be carried exclusively by the private sector. We all hope that Nama succeeds in realising the best value for the property it controls. But in reality it was always going to be a tall order to make a positive return without manipulating the facts.

We still need a radical renegotiation of our national debt. The gap between public spending and tax revenue will have to be cut before we can expect any help. The Government has shown no sign of correcting the imbalance. The burden has been shared unequally between the private and public sectors throughout this crisis. Top public jobs continue to levy an unbearable, and in many cases unjustifiable, burden on the public. Cutting pay for new entrants to the public service forms a barrier to the admission of new talent while insulating those in charge from any financial effect.

We need to start at the top. If public sector pay and pensions are genuinely too high then cut them, or tax them. While the calculation of public sector pay and pensions for senior jobs lacks transparency, it cannot be justified and it should be reformed.

Public sector pensions cause the greatest controversy. There is no fund out of which to pay them. This year we must borrow nearly €20bn to balance the books. We just don't have the money. Recently the judiciary highlighted the mystery surrounding these pensions when they sought special treatment to avoid the excessive tax charges that are being imposed on certain private sector schemes.

Their main gripe is that they might already have large private sector schemes and the award of a public service pension after only 15 years service would create outrageous tax charges. There is little difference between them and people in the private sector who paid for their pensions by sacrificing their earnings.

The valuation mechanism for senior public service pensions is artificial, but if anything, it undervalues public sector entitlements. If it was not for the fact that lower values can be agreed with the Revenue Commissioners, the proposals might warrant review for judges who retire at age 70.

My point is not that these officials don't deserve the pensions they worked for. But those who make the agreements will not be around when it comes time to pay the price.

We should fix the problems we have before creating anymore for ourselves.

The Government's first hundred days is nearly up. It failed to renegotiate the bailout. It has not tackled public spending. It has only raided what's left in the private sector piggy banks and it might not be done yet.

James Fitzsimons is an independent financial adviser who specialises in tax and financial planning.

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