That dreaded four letter acronym, NAMA, has been dominating headlines for the last six months. Originally proposed by Finance Minister Brian Lenihan in April’s emergency budget as a way of fixing the problems in the Irish banking sector which have resulted from the collapse in property values, it has since become a serious political issue that could yet unseat what is now – for better or worse – a deeply unpopular government.

SO WHAT IS NAMA?
NAMA stands for the National Asset Management Agency. As of yet, the body does not exist, but legislation to set it up will be put to the Dáil by the Minister for Finance over the next few weeks. NAMA will act as a ‘bad bank’, that will buy ‘toxic’ property and development loans from Irish banks.

WHY IS THIS NECESSARY?
Because as things currently stand, Irish banks are technically – if not literally – insolvent. When the property market was at its peak, they lent vast amounts of money to fund the purchase and re-development of buildings and land. The properties are now worth far less than the loans, and so the banks are sitting on a collosal amount of ‘negative equity’.

SURELY THAT’S THEIR PROBLEM?
Well, it is. But the fact that these so called toxic loans are on their books means that no one internationally has sufficient confidence in the Irish banks to lend them money. As a result, in turn, they do not have the capital to lend on to business. When money is in sufficiently short supply, there is a risk that the entire machinery might seize up. To quote the great and ever-eloquent ex-President of the USA, George W. Bush: “If money isn’t loosened up, this sucker could go down.”

WOULD THAT REALLY BE BAD?
Most people seem to agree that letting the banks collapse entirely would not be a good idea. People’s savings, for example, would likely be wiped out. But a number of different solutions remain open to the Government. For example they could nationalise the banks completely. This would mean that people who invested in bank shares would lose everything they invested, but that savings held by the banks would be secure. Many commentators – and increasingly members of the general public – have no difficulty with this, but for reasons they have yet to fully explain the Government desperately wants to avoid full nationalisation.

WHY?
Buggered if I know. You could point to the alleged excesses and wastefulness of the public service as a reason to keep its banks ‘private‘ – but could that be any worse than the excesses of the banks? It is hard to imagine how!

SO WHAT IS THE GOVERNMENT’S ALTERNATIVE?
We’re back to NAMA. It is proposed that this agency or bank, funded by the taxpayer, will purchase the toxic loans not at their ‘current market value’ but at what is being defined as their ‘long term asset value’. There is an element of sophistry in all of these terms, but basically, what this means is that the Government will relieve the banks of a very substantial proportion of their negative equity, enabling the banks to get back to ‘business as usual’. Sort of...

YOU MEAN THE GOVERNMENT WILL BE PAYING THE BANKS MORE THAN THE PROPERTIES ARE WORTH?
Precisely. This is NAMA’s only raison d’etre. If NAMA paid only the “current market value” then the banks would be as well putting the properties on the open market. After all, how is the current market value defined other than as the amount at which buyers and sellers trade a piece of land or property in the open market?

OKAY, HIT ME WITH IT: HOW MUCH MORE THAN THE CURRENT MARKET VALUE WILL NAMA PAY?
For reasons that should be obvious at this stage, no one knows: (a) what that value is; or (b) precisely how much more than it NAMA will end up paying. There have been suggestions that the Government will happily allow NAMA subsume the loans at a cost of 15% or 20% less than their “current book value”. But that might mean paying double their realisable value in the short to medium term. If these figures are correct, then they’d pay €100 million for a debt of €125 million borrowed against a property that no one in the world would pay more than €50 million for right now. Apart from NAMA, that is.

IT SOUNDS LIKE A SHIT DEAL FOR THE TAXPAYER.
No two ways about it: it is. The bottom line is that NAMA is a vehicle specifically designed to prop up the banking system. It is criminal that, as taxpayers, we (a) should have to do this in the first place; and (b) that we are being required to take a punt, of what is an intimidating magnitude when there is so much uncertainty in the market.

SO HOW MUCH IS IT LIKELY TO COST THE TAXPAYER?
It isn’t funny. While there is still a lot to play for, in terms of the amount we pay, the latest estimation of the likely ‘investment‘ cost is around €60 billion. The Republic’s 2008 gross domestic product was estimated at €122 billion, making this the biggest State investment in our history, by a very long shot. Potentially we could be looking at losses in excess of €30 billion.

WHAT ARE THE OPPOSITION SAYING?
Fine Gael, Labour and Sinn Féin all oppose NAMA in its current guise. Fianna Fáil’s coalition partners, the Greens will decide where they stand with a meeting on September 12. Both Labour and Sinn Féin have argued that a temporary to long-term nationalization of the banks must be included in the rescue package, insisting that a controlling share for the State is a minimum requirement. This approach worked for the Swedes when their banking system keeled over and almost died in the early 90’s.

DID I HEAR SOMETHING ABOUT A GROUP OF 46?
Yes, indeed. A letter of objection to NAMA was signed by 46 prominent Irish economists and financial experts, who argued that NAMA was a flawed concept and that the Government should pay only the current market value for the loans.

SO IS BRIAN LENIHAN FOR TURNING?
Perhaps a little bit. In a recent twist, the new Governor of the Central Bank, Patrick Honohan, hinted that some form of ‘risk sharing’ between banks and taxpayers would be appropriate. We can take it that the Minister approves!

WHAT IF IT WORKS?
If NAMA comes into existence and implements the proposed swathe of loan purchases, in theory the lending capacity of banks should be revitalized, like Popeye’s transformation after a feed of spinach. The availability of more money for business and enterprise, should have a positive effect on the economy and stimulate growth. Goodbye economic slump, hello Fianna Fáil vindication. Mind you, not everyone in business is convinced it will work out that way! Banks are more risk-averse than ever…

MIGHT IT ACTUALLY BE WORTH THE PUNT?
Who knows? If the Government buys cheap but also invests enough to get the wheels of the economy turning again, there is potential for a profit at some undetermined date in the future. Brian Lenihan could be proven right and the country could be set fair on road to recovery. But it is and remains a massive – and many believe unjustifiable – gamble, with taxpayers money.

WHAT IF IT DOESN’T WORK?
The State could be saddled with a gargantuan loss, and suffer a major blow to its international financial standing. If that happens, the country will find it extremely difficult to borrow funds, and a full scale depression seems inevitable. If we aren’t in one already, that is…