This Bill is designed to get people back to work. Deputy Burton suggested that there might be political advantage to staying in Government at the moment - that it was an easy call to stay in and it would be good for a political party.
It is not an easy time in Government but it is a time when one can do a significant amount of good. One can make effective change for the sake of the common good, particularly if one saw this crisis coming, as the Green Party did. Only two and a half years ago, while in Opposition, I saw the obsession with property taxes. We were told we had to keep house-building going and cut stamp duty. In the seven years I have been a Member of this House, I heard that mantra from just about every party, except the Green Party.
In my experience of looking at the kernel of this problem, which party can hold its hands up and say its members have not been engaged in the most reckless and now clearly wrong zoning?
It was the kernel of the problem we had. More than any other party, we said it was wrong.
What other party but ours saw the growth illusion for what it was? We were told we could have constant growth and that markets would rise forever. We were told that Celtic tiger growth of 7% or 8% per year was ordained to last forever and a day. What other party but our own went into the last election with the lowest growth expectation?
Having seen this problem coming, we are well placed in Government to help the country get out of it. It is a hard time to be in Government, but I believe it is the right time for the Green Party to put its vision into action for it is a time of real change. We will ensure that there is change in the strangely conservative and reckless banking system we have, conservative in that it was obsessed with property as the only area in which it saw enterprise as being possible, and reckless in the way that it let property lending go. We will change that. We are already starting to introduce change in the planning system, which no one else was able to do for 30 years, to end the blatant wrong whereby speculative profit could be earned from a public good, which was the rezoning that took place in that time. We are changing that and can make further changes in our planning system learning from the mistakes that have been made.
More than anything else we can change the spirit of enterprise in this country, to create a new model which is truly sustainable and gives our people not just an economic mantra for growth, but also an economic model which delivers cultural change. It will also deliver a sustainable future that people can be proud of and buy into not just for economic benefit, but also because it is the right thing to do.
It is a hard time in Government and hard decisions must be taken, which provide no political advantage. They are easily picked up by the Opposition with trite soundbites that do not go into the complexity of the issues, which are hard to explain. It is hard sometimes because the information one has cannot easily be shared when it comes to financial and commercial markets. Many commentators are making comments without being apprised of the broad information one has within Government and which sets the environment within which decisions have to be made.
We have been in Government for the past year when, on a series of occasions, action needed to be taken and decisions made. That was not easy but we have made our contribution and will continue to do so for the national good. It was not easy taking that decision on the guarantee, but I ask anyone else even with hindsight to put themselves in the Government’s shoes when there was the real prospect of banks not having money to open the next day. Would they have called the decision otherwise in seeing what they could do to take the country through this difficult time? If they called it another way, what would they do in such circumstances? While that guarantee was a difficult decision and has consequences - we said at the time that it was not without risks - it is one that may be part of a series of decisions that will help us to get out of these difficulties.
Similarly, when it came to the nationalisation of Anglo Irish Bank, we looked into the corporate governance issue and found there were serious problems there. We could not give that bank carte blanche to continue as if there was not a serious corporate governance problem. We have to respect the separation between the political and criminal justice systems. Much as we would like to see people being brought to book for that - being led away quickly in handcuffs, as they can do in America - we had to make those decisions in a responsible and correct way, putting in the necessary criminal investigations.
Yes it is, but in failing to do so the difficulty would be that the failure of one bank would lead to a failure in another. It would lead us to the same problem we had at the start, which would have been a systemic failure in our banking system. It was not easy to make the decision to put money into AIB and Bank of Ireland, but I believe it may be a decision from which we can ultimately profit. We can turn the situation around and get our shares transferred to a price that is much higher than they were issued for back in February or March last year.
Those were not easy decisions but they had to be made. We have to make further decisions. I recall attending the NTMA offices in February when the country was in crisis. People did not realise the extent of the liquidity crisis. It was a close call daily to have enough money to keep our banks open and to keep Government borrowing coming in. NTMA officials said we had to raise a significant bond, which could be put into our banks to take out the bad assets and to give us time to get this to work. Let us get the patient on to the operating table and then into intensive care before managing him or her over time. I left that meeting with a sense of conviction and urgency. We could not let the country fall and we had to do something significant to prevent it.
I have been absolutely open to other suggestions about how to address this over the past six months. The first time I was in the House following the February meeting I sat beside the Minister for Finance and I said to him that we would have to nationalise the banks. I could not see any other way out because the scale of the problem was so great. However, I have examined the issue over the past six months and while nothing is certain, no one should make categoric statements in the House about what is right or wrong. We are dealing with markets comprising human beings, which react together in different ways, and it is not easy to judge how they will go. All the evidence suggests that if we nationalise the banks, it may be difficult for the country to secure money. The international markets might say there is too much risk in Ireland and they may hold money back or send it to Austria or Sweden or they could demand a higher price because of the risk all being rolled up into one.
I cannot be absolutely certain what is the rate of risk but it is a potential cost and we could pay much higher interest rates that would quickly clock up a significant bill. There is also a risk that if we try to run the entire banking system, we will not do a good job. We can take certain actions in the political system but we would not run the banking system well. As hard as Department of Finance officials have worked over the past year, they do not have the resources to run the system. A proportion of the system must be in the market in order that supervision, independence, expertise and funding is ensured. There are costs involved. It is easy to think that it will all be sorted through nationalisation and the valuation process, but that would not reduce the cost of capitalisation that would have to be provided. The losses on the loans will still occur and the State would have to pay for every loan. NAMA will not take on loans worth less than €5 million, which are hassle to work out, but they would have to be taken on if the banking system was nationalised.
I totally respect people’s right to come up with alternatives but the complex implications and costs behind such decisions must be examined. I have no objection to Deputy Bruton’s good bank proposal but if one examines how it would work rationally, it is difficult to see how €2 billion in taxpayer’s money could be turned into €30 billion or €40 billion to buy the good assets. I do not see where they money would come from.
I also have a concern about the delay in addressing the fundamental difficulties in our banks that would result from this proposal. In addition, Fine Gael referred to the possibility of defaulting on subordinated debt. I agree it would not be difficult for us to say to bondholders that they took a risk, which will lead to a loss. However, if one examines what has happened in our banks, that loss has happened. The bondholders have taken a hit of up to 75% in some cases. I do not see where that magical, easy source of funding is in terms of tackling bondholders.
The other alternative proposed is the default option, whereby we default on our bondholders.
There is a difficulty with this in that even if the State defaulted on senior debt bondholders, it would have to go back to them the next day seeking money for the banking system or Exchequer borrowing and that could be more difficult to secure. One cannot be certain but the Government has to take that risk into account. It is easy on a hypothetical basis to say we should try this idea, but the Government has to take that risk on behalf of the people and there is also the potential risk of having to pay higher rates of interest. Approximately 70% of bonds will mature before the expiration of the State guarantee next September. If we take the default option, there is a risk of a flight of money out of our banks and we will be back to September 2008 again facing the difficulty of keeping money in our system to sustain lending. This would not be done for the sake of the banking system. If banks do not have money, they cannot open on Monday morning and cater for the housewife who wants to draw down money for her family or for the farmer who might want to buy seed. This money would not be for the banks but to keep the system going.
When one considers the various options, NAMA is complex but a number of its features stand to it. First, it will be low cost. The NTMA officials wondered last February whether the State could obtain ECB funding at a low rate because it would be hugely beneficial.
The ECB has stated it will provide the funding. It is needed as part of a stimulus. We are in a classic recession as we spiral downwards because of a lack of confidence and, in turn, a lack of spending, which has led to deflation. All the economic analysis says a state must stimulate in those circumstances. It is slightly counterintuitive to spend one’s way out of debt and the problems associated with it, but it is the only way to do so, according to all the macro-economic analysis.
This is our stimulus opportunity but it will not lead us back to the old ways. We are at a fundamental changing point in capitalism, particularly in Ireland. The politics of the past 50 or 60 years was about who owned the resources but this will change to how we sustain and protect such resources, which will lead to a new economy. Keynes said in the middle of the last similar crisis in the 1930s that an economy must be stabilised before it can be reformed. His analysis holds true today. We are adopting a stimulus to get the patient out of the operating theatre and into intensive care for a number of years when we can make the reforms that are needed. However, that must be done with a stimulus package. That cannot be done while the economy continues to deflate and that is at the centre of the NAMA concept.
It is important, having set out on that task and where assets are off the banks’ sheets in order that they begin to lend more effectively, that there are protections for the taxpayer. Last week, Deputy Burton said I was referring to an equal mix. I clearly said that for any premium we pay above the current market value, the taxpayer must be protected through two key concepts. First, we own a good chunk of the banking system and I have no problem with us taking a nationalised position in that sense in our banks and, therefore, we are on the other side of the deal for any such premium and we are protected. Then there is the gap on risk sharing. I read the letter written by Dr. Patrick Honohan which the Minister for Finance quoted earlier. He is supportive of this approach and I do not know how Deputy Bruton can say he has not approved it. Dr. Honohan said this was the correct risk sharing policy. It is strong because the taxpayer is paid first and the bank second. That concept is crucial in answering the taxpayer’s question about how he can be sure he is not paying over the odds. We want that concept stitched into the operation of NAMA.
NAMA will be a small agency. It is correct that the banks should be used. Tens of thousands ordinary, decent, capable and enterprising people work in our banking system and we should not throw that away and say that they do not have a role in this. The Government can use their skills and credit management facilities to our purpose. The banks’ shareholders have taken a hit, losing approximately €40 billion on shares. Trades unions, farmers and pensioners invested money in these shares. Many people have lost a fortune and no one is protecting the banks and their shareholders. Most of the money was lost, unfortunately, because of the fundamental mistakes made by the banks. That does not mean we proceed on a vindictive basis with our banking system. We will use those bank officials and the skills they have and turn them around to a new form of banking that suits our purpose.
People, including those in our party as much as elsewhere, still have questions about how NAMA will work, which we will attempt to answer. The crucial question concerns how we get a new banking system and how we can have a completely different culture where the obsession about selling property, car or simple loans turns into a banking system that is fit for the purpose we need now, namely, a clean, green energy, enterprise economy. Our banks, as we recapitalise them, will have to set themselves to that task and make their profits there. It may be less spectacular and speculative, but will probably be better over the long run, and it is what they have to do. We have to get them lending and we have to guarantee and show how that will be done as we go through Second Stage and Committee Stage of this Bill.
There must be further certainty around the valuation process, that is, where developers’ equity exists or does not exist, which it will not in many cases because a deal might have been done in such a way that it was cross-securitised and the bank did not get the real value stitched down. The figures today are estimates. We are pursuing developers using the credit control facilities of the banks, and others, in a contract way that pursues developers to the nth degree, takes their houses if they cannot pay and gets the security back to the taxpayer. That is something people need to know. People need to know how they will be dealt with and what are the values. If they are not what we think they are, although a fair bit of analysis lies behind the figures given today, they will be adjusted. It is the valuation on a loan-by-loan basis which will determine what happens.
Another crucial point is that people need confidence that we are not going back to price rises in property. The prospect of spending 25 or 30 years paying off a mortgage was a killer for young people in this country. I got my own mortgage some ten years ago and when they showed me the figures I could not believe how much I would pay off in the end compared to how much I got in the first place. We do not need property markets going up all the time for us to make money. For too long we were obsessed with property and we need to get away from it. The figures set out today include ten years estimating a less than 10% increase in property. Any difference between the interest rate one is paying and inflation will cover that. We are not trying to get the economy kicking again in terms of property prices. Those days are gone.
In terms of the default option, there is view out there that says “Let the market do it”. I heard Deputy Richard Bruton say it today. Should the Government be setting up an asset management agency at all? Are we good or bad at that? I had some thoughts over the past few days when I read articles expounding the theory that the market knows best. I disagree. Our banking system, developers and market were lousy at asset management development. I heard Deputy Rabbitte laughing earlier and saying “Here is the Green Party bit of the Bill where we will put in special schools and parks”. I am proud of that new part of the Bill. I am proud of getting planning that puts the school in at the same time as the houses and which does not pay over the odds.
I am proud of being in the Green Party in these difficult times. Deputy Bruton said he did not have faith in our DNA to get the planning right and act like the Swedes do. We are comfortable with our ability to do that. We can do it in a way that helps this country out and have a vision as to how one sticks to proper planning.
We are in Government not frozen by fear or locked by ideology but we are ready to play our part in getting the country out of a difficult time. We need to give people confidence that we can do it. We need to have confidence in ourselves because we are legislating for ten to 15 years or whatever time it takes to work it out. All sides of this House will manage NAMA in that time. Does Deputy Gilmore believe that the Labour Party in Government could make a contribution better than that of some of the developers and bankers in recent years?
Can we in Government can work out the assets in a way that pays back the taxpayer and gets us good housing? I believe we can. We have grown up as a country in 70 or 80 years. We got it wrong in the past ten or 20 years. We got cheap, easy money after we had been poor for 800 years. We blew it, but we are still a strong and capable country that has grown tremendously in the past 80 years. If it is, as Deputy Burton said, a personal trust, I trust the people of this country, in these very difficult and challenging times, to be able to turn things around and for us to be able to get this to work. That is why I support this Bill and the Minister for Finance today.