A GROUP of 46 economists has signed an article in today’s Irish Times calling on the Government to reconsider the National Asset Management (Nama) project.
They argue that Nama should pay the banks only the current market value for the loans it will assume.
In response, economist Alan Ahearne, special adviser to Minster for Finance Brian Lenihan, said last night that a number of claims in the article were incorrect. He added that most of the economists in the country had not signed the article drafted by Prof Brian Lucey of Trinity College.
Prof Lucey said he had contacted about 250 lecturers in economics and not one had come back to say they disagreed with the views expressed in his draft. He said a number did not sign because they did not want to get involved in a round-robin exercise.
In the article, the economists say the Government will pay significantly above market value for the bad loans advanced by the banks.
“The key difficulty facing the Government is that to pay prices now prevailing would leave the banks sitting on losses sufficiently large as to effectively bankrupt them, which would then require the State to invest capital sufficiently large as to in effect nationalise the banks,” the economists argue.
“It is thus clear that the Government are determined to pay a price for land and speculative developments greatly in excess of the market clearing price.”
The economists say that by overpaying, the State would wind up transferring to private individuals a sum close to exchequer’s entire annual tax-take.
The economists went on to urge the Government to reconsider its approach to payment for loans to be taken into Nama and to pay no more than current market value, which they said could be ascertained even in these straitened times.
The article suggests that bank shareholders should forfeit their investment. Bondholders should also be asked to swap debt for equity in the banks.
In his e-mail to fellow academics asking them to sign the article, Prof Lucey pointed to the impact of an earlier article on the issue signed by 20 economists.
“The 20 economists piece in The Irish Times has been constantly referenced in the debate, so we as a group do have influence. How much more influence on the debate might we have if we had 200 signatories.”
Mr Ahearne was one of the economists contacted, but he responded by sending an e-mail to colleagues taking issue with what he described as “some of the deficiencies in the note you have been asked to sign”.
He disputed a number of claims in the article, including the assertion that the true value of the loans being taken over by Nama would be close to €30 billion.
“I’m afraid that anyone who is trying to suggest that they can make a reasonable guess at the ‘true value’ of the loans without knowledge of any of the details about the individual loans is either delusional or is being disingenuous,” he said.
Mr Ahearne also said the notion of making the bondholders swap debt for equity showed “a startling lack of understanding” of the bondholders’ position, given that they were covered by the State guarantee and bonds might have been bought after the introduction of the guarantee.
“I hope you agreed that what you have been asked to sign is a rather poor piece that unfortunately does nothing to inform this crucial debate,” he concluded.
With the Cabinet expected to be briefed on Nama today by Mr Lenihan, Fine Gael finance spokesman Richard Bruton last night accused the Government of running away from a debate on the issue.
