On being asked to write a blog about NAMA last week I must admit I wasn't thrilled at the prospect initially... Then after a few minutes I realised that this was a great opportunity to finally learn about what I ignored in the news because of not understanding it. All I could remember from news reports was 'toxic debts'
Being away on Erasmus last year really gave me an excuse to ignore the financial situation back home and the extent of the damage that was being done to our economy. Living in Portugal, were there already was extreme poverty meant that we saw first hand how people there survive troubled times. Coming back to Ireland in June from what everyone had been telling us, I was expecting similiar conditions, and what I came home to was a complete contrast. Things hadnt really changed! But I guess visually there really wasnt any change except for quieter shops... It was underneath that things were crumbling. The economy had definately become unstable and suddenly people weren't sticking their hands in their pockets so easily. This transposed to the housing market and thus action needed to be taken..Step in and take a bow NAMA.. The supposed answer to all the problems... Well not quite is more like!
From my understanding with brief research NAMA was an agency set up to pay over the odds for bank debts with tax payers money. This was with the aim of stopping the banks from going bankrupt.
Example
Borrowed - €1,000,000 for house
Now worth - €500,000
NAMA Buy - €750,000
NAMA pay the bank so the bank can continue operating as normal
Why? Why would they do this? Why would they buy up all these failing debts?
NAMA are not just trying to save the banks, they are in no uncertain terms a profit making organisation.. They hope that by collecting up all these assets that in time these assets will return to a higher value and then the government will make their money back and then some...
This is just my view of NAMA and of course I have probably misinterpreted it to a certain extent.
Offically NAMA is defined by http://www.finance.gov.ie/ as the following:
'NAMA will be established on a statutory basis, under the aegis of the National Treasury Management Agency. Assets will be transferred from the banks to the NAMA to strengthen their bank balance sheets and ensure that uncertainty over bad debts is reduced. This will facilitate a sustained flow of credit on a commercial basis to individuals, households and businesses in the real economy.
The Agency will purchase the assets through the issue to the banks of Government bonds. This will result in a very significant increase in gross national debt, to be offset of course by the assets taken in. The cost of servicing this debt will be offset, as far as practical, from income accruing from the assets of the new Agency. The debt will be repaid from funds raised through the realisation of those assets over time.'
This is what I know aboout NAMA and what I have read about on the Government website. Aside from this I am stil unfortunately much in the dark about NAMA. But I am hopefully that some good will come out of it in the long term!
