NAMA: An activists guide

socialise resources, not losses

This article summarizes how NAMA works, what’s wrong with it and suggests how we can fight back against it.

Why NAMA was set up and with what objectives

What NAMA basically does is to take loans (good and bad) related to property development and land speculation with a view to development. These loans are taken off the banks. Banks got into big difficulties as a result of the financial crisis. They had ‘liquidity problems’, meaning they couldn’t get money themselves. A banking crisis can lead to a general economic crisis. By taking the riskiest assets it is thought the banks can become viable again because there is less uncertainty: ‘Replacing these property loans with Government Guaranteed Securities [aka NAMA bonds] will remove uncertainty about the soundness of banks’ balance sheets and make it easier for them to access funds in the international financial markets. Banks cleansed of risky categories of loans will be free to concentrate on their core business of lending to and supporting businesses and house holds’ (NAMA, 2010).

So NAMA attempts to do two things: (1) ease the overall financial crisis by stabilizing banks; (2) provide liquidity (cash) to banks so they can start lending again, hence stimulating investment.

So far NAMA has not been successful: ‘NAMA has failed to deliver on a primary aim, to create liquidity in the Irish banking sector, which needed further recapitalization and nationalization’ (Kitchin, 2010). In other words, the banks have not been stabilized, we have to keep throwing money at them and they are not lending.

Loan transfer breakdown

We can break down a bit what was involved in the transferring of loans to NAMA. NAMA identified the property-related loans the participating banks had on their books. Initially this related to loans of over 5 million issued before December 2008, but apparently this has been changing over time. These loans amounted to 77 billion, of which 49 billion are ‘land and development’ and 28 billion are ‘associated loans’ (loans backed by commercial investment properties). This amounts to between 14,000 and 15,000 loans (NAMA, 2010).

All of these loans have been simply taken off the banks and put into NAMA. NAMA pays the banks in return for the loans, hence providing the banks with liquidity. NAMA does not pay the full original price for these assets. This is because their value has decreased hugely due to the property crisis. NAMA pays the estimated current value of the loans plus an additional 15% which is supposed to represent ‘long-term economic value’. This 15% mark-up is one of the most controversial aspects of NAMA because the idea that the long-term value of property will amount to a 15% increase over the next ten years, at a time when property prices are collapsing, is highly implausible. Altogether, NAMA has paid 30.5 billion to banks (NAMA, 2011).

Alan Dukes (chairman of Anglo Irish Bank) recently indicated that NAMA may require a further 75 billion to take on additional loans#_msocom_1 #_ftn1. While NAMA denies this, the continuing banking and property crisis means that NAMA may indeed end up increasing its spending.

NAMA doesn’t give the banks cash directly. NAMA gives them NAMA bonds, or Government Guaranteed Securities. These are like IOUs. The banks give these to the European Central Bank in exchange for money. Then NAMA at some stage (presumably before 2020 when it is supposed to wind up) will pay the ECB back the money.

NAMA initially claimed that it would generate 5.5 billion in profit by 2020 when it will be wound up. The idea was that NAMA will generate money from ‘performing loans’ (loans that are being paid off). For non-performing loans, as explained in more detail below, NAMA can take over the related property or commercial assets. These can also generate money, typically by selling them. NAMA has made 2.6 billion so far (McDonagh, 2011). Recently NAMA Chief Executive Brendan McDonagh declared that the organization now hopes to generate 1 billion over its lifetime#_msocom_2 #_ftn2. In 2010 NAMA lost 1.1 billion.

In terms of where the assets transferred to NAMA come from: 67% of assets are in the Republic of Ireland; 6% in the North; and 21% in the UK. About 36% of assets are land; about 28% are development loans; and about 36% are associated loans (Kitchin, 2010). The breakdown by bank is as follows: AIB-24b; BoI-15b; Irish Nationwide-0.8b; Anglo-Irish Bank-28b. I think ESB is also participating but I’m not sure to what extent.

To sum up at this point, NAMA effectively gives the banks 15% above what the assets were worth at the time of purchase and then takes the assets wholesale off the bank’s hands. Property prices have continued to fall dramatically since 2009, so at this point NAMA (i.e. me and you) has massively overpaid for the assets. NAMA’s claim that it will make the money back is based on the prediction that property value will increase by 10% over the next ten years (NAMA, 2009). In other words ‘to recover the state investment the property market will need to be re-inflated’ (Kitchin, 2010).

What happens next?

Once NAMA has acquired the loans its job is to manage them. This can go two ways. Borrowers have to submit a 3-year business plan to NAMA within 30 days of loan transfer (NAMA, 2010). If they are approved, all continues as if it was a normal bank, the developer continues paying interest as if it was dealing with a bank and will eventually pay off the loan.

However, if NAMA considers that a specific loan will not be repaid it can take action by appointing a receiver to take control of the property. It can also seize other assets supporting the loans (residential property, commercial investment properties, shares etc). This is often referred to as ‘enforcement action’. NAMA then has six options: sell; lease; hold; develop; manage/maintain; demolish. NAMA can make funds available (solely or as a joint venture) for developments to be completed. If the property is, say, a shopping centre, the receiver will run this with the objective of maximizing profit. Receiver’s often run businesses in a ruthless fashion, for example firing staff and reducing wages. It would be interesting to see if this is occurring in commercial activity under NAMA. If the properties are to be sold a receiver can also take charge of that process.

According to Simon Carswell#_msocom_3 , NAMA has reviewed business plans for 91 of the top 180 borrowers. Enforcement action has been taken against 27 of these#_ftn3.

NAMA governance

NAMA is a Special Purpose Vehicle and is a separate legal entity set up by the State. It is 49% State owned and 51% private. However, my understanding is that AIB and Bank of Ireland make up most if not all of the private investment. AIB is around 99% state owned. BoI was about 34% state owned, but state share has been reduced of late as a result of new private investment in the bank. The structure is such that NAMA’s debt is kept of the State’s balance sheet. This is basically a trick which the EU goes along with because, on the basis of the Stability Pact, countries aren’t supposed to be generating that kind of debt and this is a way to make it look like we’re not. However, according to a Namawinelake article#_msocom_4 , the NAMA bonds are being considered as State debt by Standards and Poor and other International Credit Ratings Agencies. This suggests that NAMA debt is one of the reasons Ireland has had its credit rating continually downgraded, which is why we’ve ended up in the EU/IMF bailout.

On paper NAMA has decision-making autonomy, although people don’t take this too seriously because the government has a veto.

Importantly, NAMA, because it is majority ‘private’ owned, isn’t subject to the Freedom of Information Act. This means that little is known about its operations. We don’t know, for example, the full extent of the loans NAMA has and what properties are actually attached to those loans.

The running costs for NAMA in 2010, according to the agency itself, were 46 million (NAMA, 2011). Between NAMA and NTMA (National Treasury Management Agency), its parent organization, there are 16 people on over €200,000 a year.

The Irish State: the world’s worst property speculator?

NAMA crystallizes the most grotesque and dangerous dynamics which are at work in Europe today. First of all, it socializes risky assets leading to losses for ordinary people. This means public debt has increased and reached unsustainable levels, a fact which the State is responding to by attacking public services, working conditions etc. NAMA has exaggerated this socialization of losses by over-estimating the value of the assets, through it ludicrously inflated estimations of long-term economic value.

Secondly, NAMA’s limited economic remit means it perceives its assets in pure economic terms, despite the fact that NAMA’s assets are our homes, our cities and our countryside. This ignores possible social uses. Many of these assets are idle or being run at a loss (like the hotels). They could, and indeed should, be used by citizens for social and public projects. NAMA’s narrow economic remit also means the cities and country we live in will continue to be over-determined by a short-term and property-obsessed view.

Finally, and perhaps most disturbingly, NAMA ties together the public interest and property-lead growth (and as such credit). One of the changes in recent decades has been that ordinary people have gained an interest in the economic system by becoming property owners and indeed property speculators, through easy credit and low interest rates. NAMA goes one step further because it links the State itself to the property market and speculation. The property market needs to undergo a dramatic increase in order for NAMA to recoup its money. This has a chain effect: for property to go up, easy credit needs to be available, for this we need strong banks, this requires more support to the banks at the expense of public services etc; easy credit makes house prices go up, which means we have to borrow more and more. And so on.

More generally, NAMA is a key part of the set of processes through which the very distinction between public and private has disappeared. In Ireland today we have something akin to state-capitalism: the State controls virtually the entire banking sector plus a large amount of the property sector. Through NAMA it is indirectly running everything from pubs and hotels to apartment blocks. In this context appeals to the State to protect the interests of citizens and workers are naive. All our basic assumptions about politics are being put to the test.

Fighting NAMA means fighting the financialisation of life, indebtedness, and property-lead growth. It means fighting the collapse of the public and the expansion of capital.

Fighting back: life after property speculation

One of the difficulties in fighting back against NAMA, and this is probably true of the crisis in general, is the overwhelming nature of the amounts of money and the facts and figures. This is no coincidence; NAMA’s first line of defense is secrecy and mystification. So finding, gathering, analyzing and sharing information on NAMA is one way of attacking NAMA. Some resources for those who want to undertake further research on NAMA are available here#_msocom_5 .

Second of all NAMA has a number of physical and material manifestations. These are points at which we can intervene. The offices of NAMA are at the Treasury Building, Grand Canal Street, Dublin 2, Ireland. NAMA, as mentioned has two sets of assets. Those which have been placed into receivership and hence which NAMA has more direct control over can be accessed here: http://namawinelake.files.wordpress.com/2011/07/namaenforcement.pdf.

NAMAs overall (estimated) list of assets is available here: https://spreadsheets.google.com/ccc?key=0AlV6jFjykyK6dHdKR0kwY2FkcEtQT19NQ2p6NkwwRkE&hl=en#gid=0

 NAMA also has auctions to sell-off property, often at a fraction of its original price.

But what demands and analysis should we advance? In other words, what would constitute a radically egalitarian and democratic approach to NAMA?

The first thing to point out is that if NAMA’s assets are not sold then we loose out in the sense that NAMA accrues more loses which are paid for by the State. This is not an unfortunate side-effect; as already argued one of the main features of NAMA is to weave together the State and property speculation.

So this could mean that any action against NAMA is represented by the media as an attack on the national interest.

That said, the following points should be the point of departure for the struggle against NAMA:

We reject the premise of NAMA: socializing losses

We reject the linking together of the State and property speculation in any form

So if we reject property speculation, which is one system for valuing and organizing property, and we reject the socialization of losses, what alternative do we propose? My argument would be that the best way is to advance an alternative approach to the use of properties, one in which social and cultural value would be emphasized above economic value. This would take place through the socialization of resources, rather than losses. We could directly show how NAMA properties can be given another use, rather than being sold-off on the cheap.

There have already been a number of attempts to give alternative uses to NAMA buildings. Limerick City Council has apparently been facilitating artists using NAMA buildings. The Complex theatre space in Smithfield (Dublin) is in a NAMA property. However, while it is positive to see NAMA buildings being used for art and culture, we also need to question the effects of this and the political implications. It is well known that art and culture play a key role in urban regeneration, property speculation and gentrification by revitalizing areas. If alternative uses are simply ways to increase the value of NAMA buildings then we reproduce the logic of speculation. This doesn’t mean its ‘wrong’ to have art spaces in NAMA buildings. It does mean that doing so does not in itself break with the logic of NAMA, the socialization of losses and State-led property speculation. There is a second issue here, evidenced by the case of the Complex (which is being evicted so a Tesco Express can move in) and implicit in the term ‘slack spaces’. This term refers to the fact that during a period in which a property is not being used for property speculation or commercial activities, artists can use it. When the opportunity arises to generate money, however, things change. This issue is not tangential to NAMA. Remember that NAMA’s legislative basis is to maximize earnings from its assets. If, hypothetically, a developer submitted a business plan to NAMA which included indefinite use of assets for social or cultural projects, NAMA would be legislatively bound to reject the plan.

In this context, I think it makes more sense to demand the change of the NAMA legislation such that all assets are fully open for public and social uses. This can only be effective by building up political pressure. Political pressure can be generated through the construction of some kind of counter-power, by which I mean a force outside of the State but strong enough to pressure the State into undertaking certain actions.

To facilitate this we should also be putting pressure on NAMA to become a more democratic and transparent organization by (a) making all information publicly available and (b) developing genuine, participative and democratic engagement with the citizens. I think these demands would most effectively be pursued through a broad strategy including direct action.

But we can also show how resources can be socialized in practice, by direct action.

It would also be interesting to investigate if NAMA can default on its bonds. This would be effectively a State default and the European Central Bank would be picking up the tab, so it’s no doubt complex. But so is paying back the kind of debt the State has been generating through the transfer of wealth to the banks.

References

NAMA. 2011. Annual Report and Financial Statement 2010. Available here: http://nama.ie/Publications/2011/NAMAAnnualReport2010.pdf

McDonagh. 2011. Breandan McDonagh, NAMA Chief Executive, speech at launch of 2010 annual report. Available here: http://nama.ie/Publications/2011/NAMA2010AnnualResultsPresentationByCEO.pdf

NAMA. 2010. NAMA: A brief guide. Available here: http://www.irishtimes.com/focus/2010/namaguide/index.pdf

NAMA. 2009. Draft Business Plan 2009. Available here: http://www.nama.ie/Publications/2009/Business_Plan_13OCT09.pdf

Rob Kitchin.2010. ‘Property Crises in Ireland and NAMA’ presentation for the Provisional University at Exchange Dublin, 7th of February 2010.

http://www.irishtimes.com/newspaper/breaking/2011/0209/breaking35.html?via=rel

http://www.irishtimes.com/newspaper/breaking/2011/0728/breaking20.html

http://namawinelake.wordpress.com/2011/05/23/why-do-ratings-agencies-regard-nama-bonds-as-part-of-our-national-debt/