IT is hard not to feel like you are watching a Bond movie or a hostage drama when looking at how NAMA is playing out. Hostage dramas are compelling, which is why they make such good television.
The big questions are fascinating. How stable are the kidnappers? Will they get away with it? What price will the good guys put on the hostage? If they pay the kidnappers now, will they just do it again? Can't the good guys just storm the kidnappers or maybe call their bluff?
The NAMA saga is easier to understand if it is watched through the lens of a hostage drama. The bankers, the creditors, the Government, and the old establishment who got us into this mess, are the kidnappers. They ruined the banks, but now they realise that the banks are their last chance. So they have taken hostage the shell that is the Irish banking system. They have a gun to the banks' head and are claiming that if we don't bail them out, the hostage will be killed. So they demand the cash or else they threaten to bring down the whole economy.
It's a bit like watching the North Koreans with their bankrupt country and their pathetic ideology threatening all and sundry with ramshackle nuclear weapons, which might just devastate their neighbours. The reason anyone takes these creeps seriously is that they have a hostage called South Korea. So we have the bizarre spectacle of the USA indulging a country that starves its own people. As long as North Korea has South Korea and has a gun to its head, the world has to pay some attention. And the more bankrupt North Korea becomes, the more likely it is to do something mad.
The reason we take the banks seriously is that they have convinced us that without them the economy can't recover. So the Government is both the kidnapper and the negotiator on our behalf. This is because the Government has already bought a stake in the banks and letting them go would mean that that stake is now worthless. So to keep its stake alive, it hangs on to the charade that it can neither let the banks go nor nationalise them.
So we are left with the hostage situation. We are the people who will pay the banks.
Like all hostage situations, there are two questions. First: if we settle and pay up, how do we know that the kidnapper was ever prepared to kill the hostage? And second: if we pay now, how do we know that the kidnapper won't strike again? After all, the kidnapper has just been rewarded for bad behaviour.
In the NAMA case, the equivalent of this conundrum is that we must assess whether or not letting the banks go -- and in the process saving us from handing over to them what could be up to €40bn -- is a risk. If you believe that letting the banks go in an orderly fashion would not kill the economy, then there is absolutely no reason to pay a cent to NAMA.
International evidence here is interesting. There is no evidence from the world of finance and banking which says that a winding up of the banking system in a country and replacing it with a new banking system has any lasting effect on the economic performance of the country. In the US this year alone 300 banks and finance houses have gone to the wall and, according to the latest data, the US economy is tentatively recovering. Sweden wound up its worst banks without adverse effect. In France, banks are rarely called banks due to the frequency of bank collapses in the past and France is not a basket case -- it recovered and constructed new banks.
Banks are like any other business: new ones replace old ones, and if we install a national deposit guarantee rather than a blanket guarantee, which can be allowed to lapse, we can prevent chaos.
The second question is: if we pay now and reward the kidnappers for bad behaviour, will they not just conclude that there is a blank cheque which will be signed to bail out every problem, thus encouraging them to repeat this bad behaviour again? So, instead of changing behaviour and saving the system, we risk encouraging bad behaviour.
There is also the problem of image. If we are seen as the sort of place that pays kidnappers, what is to stop them kidnapping again for an even bigger ransom? What is to stop bankers rolling up their other bad debts and dropping them into a NAMA mkII?
It is easy to imagine a constitutional challenge to NAMA by an average citizen who is about to be evicted.
This citizen might argue why his debts are being foreclosed on when the much greater debts of huge developers are being given a 10-year timeframe to be sorted out? Such a constitutional challenge could see the entire structure collapsing. On balance it would seem more logical to negotiate with the kidnappers rather than succumb to all their demands. This would mean suggesting that we might not extend the guarantee. This would send equity in the banks plummeting and would upset and unnerve the kidnappers. We might also suggest that we don't think the hostage is worth the price. Sure, this might cause the share prices to drop back to cents but this is what we should want as it is the people who are going to foot the bill.
The share price is an indication of the confidence of the kidnappers. At the moment it is rising because they think they are going to get top dollar for their hostage and, in the process, they are going to escape jail. It is time now to recalibrate the balance of fear so that the kidnappers have to think twice about their next move.
This could be done by the Green Party pulling out of government, leading to a general election which will allow alternatives to blatant hostage-taking to be put back on Ireland's agenda.