Some call it “chutzpah”
Dermot Desmond pops up twice in the business pages of the Irish Times today. Once as sage commentator offering a seemingly pain-free way out of the banking crisis. Then there’s a convoluted story from the foul rag and bone shop that is the Michael Lowry portion of the Moriarty Tribunal in which the question is who knew what and when about a mysterious large shareholding in Esat Digifone. Held by one Dermot Desmond. But anyway, poacher turned gamekeeper and all that. What of Desmond’s proposed alternative to NAMA?
In an interview with radio station Newstalk, Mr Desmond said he would prefer to see the loans isolated within the banks and resolved over time, with the Nama acting as a “co-ordinating” and regulatory body.
“Let’s just park it and freeze everything, without gain or loss to anybody, until we know there is a market and then determine what the [loan] write-offs are,” he said.
Now this proposal has a decent pedigree. It’s a version of the German “mini bad banks” that is also circulating at the moment. No up front cost, let bank profits cover the writeoffs, and the government only comes after 5 years to see what can’t be salvaged. Sounds too good to be true? Well, among the problems is that it requires a huge amount of regulatory and accounting forebearance: everyone who deals with the bank is being asked to ignore the huge hole sitting in the middle of its balance sheet on the assurance that sometime down the road it will be sorted out. Now maybe we can wheel out the soccer cliches about Teutonic efficiency to be confident that the Germans would stick to such a plan, but in Irish politics, it would be the classic never never.
Or, since we still have notions of being a farming nation, think of it this way. The Department of Agriculture finds foot and mouth disease on a farm. But rather than the usual destroy the herd recommendation, they tell the farmer not to worry about it, just keep the infected animal in a special shed for 5 years and then they’ll come back to see whether the disease has gone away. Would anyone have much confidence in that as a solution? That’s what mini bad banks would be in Ireland.
Image: Bank Muscat (Oman).