NAMA Debate

September 17 2009

Paul Gogarty contribution to Dáíl debate on NAMA legislation

Deputy Paul Gogarty: I will start by agreeing with Deputy Durkan. An overwhelming case can be made to ensure that those at the helm during the crisis in the banking sector get punished where the law has been flouted. The problem is that in many cases the law was lax.

There was not enough regulation or enforcement. No more than in a murder or criminal investigation, one cannot bring a matter before the Director of Public Prosecutions until one has evidence to prosecute the case. My party colleagues and I - and I am sure all Members of this House - would be abhorred if a high flying fat cat executive, who profiteered from a loss making situation at the expense of the taxpayer, were to get off on a technicality. We do not want that to happen. I am reassured by the commitment of the Minister for Finance to my party and others that the issue is being followed up and that the full rigors of the law will be brought to bear. Time will tell. I share Deputy Bernard Durkan’s sentiment in this regard.

Deputy Durkan also mentioned that banks went into business with speculators and the construction sector, which is true. Those comrades also went into business with councillors throughout the country. My colleague, the Minister, Deputy John Gormley, spoke earlier of a number of think-ins held in Monaghan where he altered the development plan. Tracts of land in other places across Ireland were rezoned not alone by Fianna Fáil and the Progressive Democrats, but by Fine Gael and the Labour Party, land that did not need to be rezoned because it far exceeded the demographic requirement for the area. In this case, through legitimate political donations which all of the major parties readily accepted, the business contract was signed, the land was delivered, the developers had it rezoned and made a profit and were able to borrow from the banks on the back of that speculative process. The banks fed into this; they also donated to political parties.

Deputy Bernard J. Durkan: That is shifting sands.

Deputy Paul Gogarty: I am just pointing out the history.

Deputy Bernard J. Durkan: It is not history. If one starts at the beginning one does not have to have shifting sands.

Deputy Paul Gogarty: We will start from the beginning now. The beginning is the legislation before us and where we go from here, how we protect the Irish taxpayer and how we bring liquidity back into the system. As a Member of the Green Party, Comhaontas Glas, I must point my party’s disagreement with the concept of the need to get back to economic growth. In the narrow economic thinking, the voodoo economics under which the global system operates, we may need to do this, but long term one cannot have unbridled economic growth because one of the main factors of production is scarce. The resources of this planet are scarce. We cannot continue producing as if there is no tomorrow. We must find a different, more sustainable model.

Deputy Bernard J. Durkan: Tell that to the person who is hungry and out of work.

Deputy Paul Gogarty: The great depression in the US became apparent because of a shortage of credit. It was based on money that at the time was related to the gold standard. That no longer applies. The lending process now requires a certain amount of deposits going through the system and is dependent on channelling debt throughout the system. When a person puts approximately €1,200 into a bank, this eventually leads to approximately €1 million worth of money floating through the system, money which does not really exist and which, if some of loans are overspread or if people start trading in loans as they did in the US leading to the creation of this whole problem, results in the collapse of the system.

Deputy Bernard J. Durkan: That is what we are doing now. We are trading in loans.

Deputy Paul Gogarty: Absolutely. That is why, in the short term interests of this country, the economic interests of ordinary people being obtain loans for home improvements, business or in order to have their wages paid, we must get the banking system working again. That is the reason the Green Party is supporting this legislation. If we had our way we would change the whole global system of economics. Unfortunately, we cannot do that; it is beyond even our reach.

Deputy Bernard J. Durkan: It is like Dublin and Kerry all over again.

Deputy Paul Gogarty: We must operate within conventional economic thought. I mention this because issues such as economic growth, sustainability and peak oil arose at our conference in Athlone on NAMA and the various options put forward. Oil prices may have already peaked or are just about to peak and this will have a profound impact on the economic system as it is a limiting factor which will stop unbridled economic growth, never mind the damage that climate change will do.

Deputy Bernard J. Durkan: That is actually codding the people. It is pretending that there is another way as some of the newspapers have been suggesting.

Deputy Paul Gogarty: There is another way.

Deputy Bernard J. Durkan: That is what Fianna Fáil said back in 1987.

Deputy Paul Gogarty: We realise the limitations in respect of changing the global economic system. However, we are in Government and in a position to do something that will, it is hoped, be far-reaching and positive for the country. I received an e-mail in which I was referred to as a quisling, a person who consorts with the enemy, who is unpatriotic. That is the level of——-

Deputy Bernard J. Durkan: It is only when one tries to justify it that it becomes baseless.

Deputy Paul Gogarty: That is the level of debate we have in this country, namely, a person who does the right thing but who may be aligned to a party that contributed to a problem, is not in Government in order to do the right thing. I do not wish to get into the politics of blame because I believe we are all to blame for this situation.

Deputy Bernard J. Durkan: We will not go there.

Deputy Paul Gogarty: Even the Green Party is to blame. We all had credit cards and we all borrowed. We did not sit eating lentils and wearing sandals.

Deputy Bernard J. Durkan: We did not.

Deputy Paul Gogarty: That is how the situation came about.

Deputy Bernard J. Durkan: The Deputy can talk all he wants about his own party but do not blame us.

Deputy Paul Gogarty: This NAMA legislation is a serious attempt to try to address the liquidity problem. A number of varied proposals have been put forward. On the Labour Party nationalisation scheme, Deputy Eamon Gilmore said it is not nationalisation because it is only for a temporary period. However, as Alan Blinder, former vice-chairman of the Federal Reserve in the US suggested recently, if a government does go down the temporary nationalisation route, there is no guarantee that it will not be medium or long term. He said: “If a government takes over a bank the taxpayers tacitly acquire the assets thereby inheriting all the uncertainties over valuation.” If a bank has a negative net worth when it is nationalised, it is the taxpayer who will fill the hole.

Deputy Bernard J. Durkan: The taxpayer is going to fill this big hole over a ten-year period.

Deputy Paul Gogarty: Regardless of how it is done, the taxpayer has to fill the hole. We in the Green Party contend that NAMA, if done properly, will cost the taxpayer less than nationalisation. Nationalisation will lead to an outflow of investment in the country and there is no guarantee in terms of how long that would last. It also raises issues in regard to the 85,000 ordinary decent people employed in the banking sector in this country. I am speaking not of the individuals I referred to last year as scum - those who messed it up for all of us - but of ordinary workers. I apologise to any bank worker who thought I was referring to them in that way.

Deputy Bernard J. Durkan: Eddie Murphy in “Police Academy”.

Deputy Paul Gogarty: On nationalisation, we have already taken over Anglo Irish Bank. It has received more than €4 billion in capital funding to date and has lost approximately €15 billion in deposits. The Central Bank has had to make up the majority of the difference through a €10 billion liquidity injection. If the State were to wind up Anglo Irish Bank, the cost to the taxpayer would be in the region of €64 billion. The same would apply in respect of the larger banks if nationalised, even on a temporary basis. In that context, it is riskier to go down that route.

Deputy Bernard J. Durkan: That is if the taxpayer accepts responsibility for them. Who said the taxpayer is responsible?

Deputy Paul Gogarty: That is a point. The taxpayer is ultimately responsible for day-to-day operations.

Deputy Bernard J. Durkan: We heard that before too.

Deputy Paul Gogarty: That is what the taxpayer elects a Government to do. It would be far more politically prudent were my colleagues and I to hold up placards saying NAMA is bailing out the bankers and the developers and for that reason we should call an election and be the heroes.

Deputy Bernard J. Durkan: That is what the Green Party is doing anyway.

Deputy Paul Gogarty: We are not going to do that. The right thing is to try to do right by the taxpayer and minimise the risk as much as possible. It gladdens my heart to have a former member of the Oireachtas, a Progressive Democrat, former Minister of State, Tom Parlon, criticise some of the achievements of the Green Party in respect of NAMA and related legislation.

Deputy Bernard J. Durkan: I thought the Green Party would be reassured.

Deputy Paul Gogarty: Anyone who is an enemy of Tom Parlon is a friend of mine and that is why I am supporting this legislation.
Let us come now to the Fine Gael proposal. Fine Gael has proposed the establishment of a good bank which, unfortunately, will not get the assets required to make it work. The magic bank proposed by Fine Gael should be able to borrow from the European Central Bank but the assets have already been used to access European Central Bank funding and there is no additional funding available.

Deputy Bernard J. Durkan: Any such funding will be used up by the time NAMA is finished.

Deputy Paul Gogarty: Fine Gael also suggests we wait another year, until October 2010, when the bank guarantee scheme has expired.

Deputy Bernard J. Durkan: That is what the Government is doing. It plans to spread the debt over ten years in the hope that inflation will save it.

Deputy Paul Gogarty: The process will begin as soon as the legislation is passed whereas under the Fine Gael proposal, it will not begin for a year. Such uncertainty cannot be tolerated. We may not have an economy in 12 months time if we do not set this process in train as soon as possible.

Deputies Durkan, Lee, Burton and others made valid points in regard to the risks associated with this plan. Nobody denies that such risks apply. It is akin to a Jehovah’s Witness being told that his or her child requires a blood transfusion but there is nevertheless no guarantee the child’s life will be saved. My party does not accept corporate donations and abhors the system of backslapping and the culture of corruption that has prevailed. We have reservations about the NAMA proposal. However, having searched our collective conscience within membership discussions, of which there will be more in due course, we realised that something must be done. Our membership recognises that NAMA with improvements is probably the least worst option. Many good people in our party have fed into the process of consultation in their efforts to improve the proposal.

The idea of an 80% windfall tax on rezoning was proposed in the Kenny report decades ago and will now finally be introduced within two years of the Green Party entering government.

Deputy Bernard J. Durkan: The Government has been receiving windfall taxes for the last ten years. There were massive receipts from VAT and stamp duty.

Deputy Paul Gogarty: Those stamp duty receipts were squandered. There were some significant achievements during the ten years of the Fianna Fáil-Progressive Democrats Government but there were many follies too. Instead of dwelling on the past, the Government must proceed with clearing up the mess, hopefully with the constructive support of the Opposition. That is what we are trying to do by, for example, including a social dividend element in the legislation.

Deputy Bernard J. Durkan: It is less social dividend and more a case of divide and conquer.

Deputy Paul Gogarty: The Minister for Finance indicated yesterday that schools, community organisations, sports clubs, voluntary housing organisations and others may be able to access NAMA land at reasonable rates. I would go further and argue that where the land was rezoned foolishly merely to fill the back pockets of a particular land owner or developer and is now worthless, that land should be handed over to the community at no charge and the loss borne by the owner or developer.

Deputy Bernard J. Durkan: What about the school sites that were purchased from developers?

Deputy Paul Gogarty: My party argued for strategic development zones for a long time.

Deputy Bernard J. Durkan: Strategic prices.

Deputy Paul Gogarty: We had to wait a long time for that. Another initiative we prioritised soon after entering government was the establishment of a developing areas unit and the development of guidelines for local authorities to ensure provision would be made for schools as part of any residential development. These were incorporated not only into strategic development zones but also local area plans. Progress has been made in that area.

Deputy Bernard J. Durkan: In some cases the sites were provided without charge but not by developers.

Deputy Paul Gogarty: In many such cases they were provided with a sweetener attached.

Deputy Bernard J. Durkan: They were provided free but not by developers.

Deputy Paul Gogarty: I take the Deputy’s point and do not disagree with it in general. I am merely pointing out the reality in some areas.

In regard to NAMA, there will always be something of a guessing game in regard to the valuation issue, and there has been much talk of risk-sharing. The estimated valuation draw-down has been put at €47 billion, with the €54 billion being paid representing a premium of €7 billion. Some €2.7 billion of that is incumbent on the banks to cover, with the rest incumbent on the State. It is reasonable to argue that this does not represent a fair sharing of the risk element. I expect my party members to have strong views on this. However, it has also been widely acknowledged that the capitalisation of the banks will not be complete even at these calculations and it may well be that further investment in either or both of the two major commercial banks will be necessary. I heard a suggestion on “Drivetime” this evening that a stake of 40% in AIB is likely. It could well be 60%, which would amount to nationalisation without the drawbacks. We do not know precisely what is going to happen but it is clear that the State’s take-up of the banking sector will increase, which means the risk is then shared on what would work out at a 50:50 basis, primarily because if the banks benefit, the taxpayer, via the State, will also benefit. It is a no-brainer in one sense but highly risky in another. There is no way around the taking of that risk.

I acknowledge that Fine Gael’s proposal was diligently researched and put forward in the best interests of the State. The same is true of the plan put forward by the Labour Party. I do not accept for one minute that either party is motivated by blind ideology or pure populism. I accept that a case can be made for nationalisation on a temporary basis, as proposed by the Labour Party. However, a consideration of the risks and drawbacks of each of the proposals makes clear that a finely honed version of NAMA is the least risky of all. This is not to say there is no risk involved.

I will conclude by referring to an e-mail received from one of our members pointing out the similarities between NAMA and a story he proceeded to relate. He spoke of a friend who put a younger brother through university, providing accommodation in his family home and subsidising his expenses as he studied for his doctorate. The young man went to on graduate and a week after securing employment asked to borrow his older brother’s car. The latter’s car was being serviced so he allowed his younger brother to borrow his wife’s motor. The next morning the keys appeared on the hall table with a note apologising for scratching the car which had been left at a local garage to be repaired.

The correspondent’s friend apologised to his wife and promised to sort out the damage. However, he received a telephone call in work later that day explaining that his younger brother had also caused serious damage to a neighbour’s car. The man promised to reimburse the neighbour and proceeded to lodge €3,000 to the latter’s account as settlement of the damage. At this stage it would have been cheaper to claim on the insurance but once the money was handed over it was too late. The damage to the spouse’s car was also greater than first reported. The man was not sure whether his younger brother qualified for open driving because he was 30 years of age and the policy specified that the driver must be over 30. Savings for holidays were now committed to the neighbour. When the repair estimate came in at €7,500, the man’s wife was furious and demanded that his younger brother be reported to the Garda or thrown out of the house. The brother showed little remorse, merely shrugging his shoulders and mumbling a half-hearted apology. This immediately calls to mind the comment by the Minister, Deputy Brian Lenihan, that the banks should be grateful for the help they are receiving. Will they be grateful? To paraphrase the Bailey brothers: Will they damn.

There was no question of the correspondent’s friend securing the money from his younger brother because the latter had huge debts for which the former was guarantor. Moreover, the younger brother was on probation in his new job. Throwing him out of the house would only delay any chance of repayment. Involving the Garda might endanger the new job and the bank might call in the loan for which the older brother was guarantor as they were rolling over the debt at student interest rates - something similar to the European Central Bank rate of 1.5% - but with an option to terminate. If the bank called in the loan to the younger brother, it would have tipped the family finances deeply into the red as a result of the punitive interest rates. The correspondent’s friend is still seething over the situation, suffering bad feeling from his wife, children and neighbour and a lack of meaningful compensation from his brother. The latter has as yet no resources worth speaking of.

As a nation, we have a similar problem with banks and developers. The Government acted on insufficient information, as provided by the banks, and made promises in the form of guarantees to deposit and bond holders. Nationalising the banks would be the equivalent of throwing the younger brother out of the house. It might make us feel better but would probably cost more in the long run. Reneging on promises would cause the bond markets to charge higher interest assuming we were even able to obtain loans. NAMA is essentially unfair in this respect but the reality is——-

Deputy Bernard J. Durkan: The moral of the story is that when moral wrongdoing goes unpunished, there will be more of it.

Deputy Paul Gogarty: Somebody has to foot the bill, and unfortunately it is the taxpayer who must do so. However, if implemented correctly, NAMA is probably the least costly option and we may even get some money back.

Posted in Dáil Speeches

Menu

Local Area

Dail

NAMA Debate

Contact Me