{"id":670,"date":"2009-12-15T21:27:10","date_gmt":"2009-12-15T20:27:10","guid":{"rendered":"https:\/\/wordpress-887124-4052164.cloudwaysapps.com\/?p=670"},"modified":"2010-01-29T10:35:34","modified_gmt":"2010-01-29T10:35:34","slug":"the-elephant-in-the-nama-room","status":"publish","type":"post","link":"https:\/\/wordpress-887124-4052164.cloudwaysapps.com\/the-elephant-in-the-nama-room\/","title":{"rendered":"The Elephant in the NAMA Room"},"content":{"rendered":"

Associated Loans<\/span><\/h2>\n

<\/a><\/p>\n

\"The
The Nama Elephant<\/figcaption><\/figure><\/h2>\n

So, what are they ? They sound harmless enough when you hear them being discussed by Minister Lenihan and the\u00a0 assorted ‘banking analist’s’\u00a0 but unfortunately nothing could be further from the truth. The ‘Associated Loans’ are the amount of money that was lent to developers which was secured against, wait for it….,\u00a0 the anticipated increase<\/em> in the value of the underlying asset ! The formula used to calculate the anticipated increase in value is the same one that you would use to calculate the length of a piece of string….<\/p>\n

For example, a developer initially seeks to borrow say \u20ac40 million to purchase a parcel of land or building. They agree with the bank that over the term of the loan the value of the asset purchased will increase by say, \u20ac30 million.\u00a0 So the bank, being keen to make even higher profits and bonuses for the staff,\u00a0 lend them a further \u20ac25M (just to be on the ‘safe’ side), using the projected increase in value of the original property as the collateral. How utterly mad is that ?<\/p>\n

The problem arises when the value of the property goes down in value\u00a0 instead of rising as originally anticipated. Now you have a situation whereby the initial loan is ‘toxic’ and consequently the so called associated loan (the loan on the loan!) is also ‘toxic’ as a result. So what was valued at \u20ac40M originally, now has \u20ac65 million borrowed against the original asset, which has dropped in value by say 50%\u00a0 or\u00a0 \u20ac20 million. And now they obviously have to write off the ‘anticipated increase’ as well.<\/p>\n

If you decided to get a 10 year mortgage on a house that cost \u20ac1 million the bank would probably insist that you put up at least 25% i.e. \u20ac250,000 deposit, before they would lend you the remaining \u20ac750,000. The primary reason for this is that should the value of the property goes down, it would have to drop substantially before the bank\u00a0 actually may lose some money. Funnily enough, this type of prudence did not apply when banks were lending to developers. If you were a developer you would probably have probably walked out of the bank with\u00a0 a \u20ac3 million mortgage and no deposit down i.e. \u20ac1 million to purchase the property and a further \u20ac2 million in “associated loans” based on the potential increase in the value of the house over the next 10 years.<\/p>\n

Basically for you and me the banks insist that we provide 25% of the purchase price whereas a developer might borrow up to 150% with no deposit! Considering the amount of very greedy people in the world is it any wonder that they took as much money as they could from the banks? At the height of the boom even a complete Muppet could make substantial cash as long as they could borrow.<\/p>\n

\n

\n

\n
\n
\"Fingleton\"<\/a><\/dt>\n
Fingleton<\/dd>\n<\/dl>\n<\/div>\n

Of course, whether you could borrow in the first place was primarily dependent upon whether or not you knew the right people. Mick Wallis, the guy who built the Italian quarter in Dublin, said recently during\u00a0 a television interview,\u00a0 “I was having difficulty raising the cash required for a substantial development and I was advised (by one of the party men) that if I wanted to play with the big boys, I needed to cut my hair, buy a suit, and join Fianna Fail”. Being the decent bloke that I know him to be, he didn’t. Maybe if he did then he could have gone\u00a0 for coffee with Michael Fingleton, the former head of Irish Nationwide, and got all the money he needed. Lot’s of others did.<\/p>\n

Incidentally, it may surprise you that Ernst & Young received \u20ac9.1m in fees from the Anglo Irish audit over the past 10 years. But a far bigger surprise is that the accountants from the company, which gave Anglo Irish Bank the all-clear, are now getting paid up to \u20ac3,000-a-day to examine the books of Irish Nationwide!\u00a0 They can be as incompetent as a 10 year old and still have no trouble getting work ? It would make you start to question how many of the top brass in Ernst & Young have met with senior members of the Fianna Fail party or have provided financial support during elections?\u00a0 The “old school tie” culture is very much alive and well in Ireland and they are not all in E&Y.<\/p>\n

Going back to our original example in the first paragraph the final result of this ‘Alice in Wonderland’\u00a0 banking\u00a0 where the developer initially sought to borrow \u20ac40 million, is that the bank\u00a0 is sitting on a net\u00a0 ‘development land’ bad debt (NAMA Speak) of \u20ac20 million\u00a0 PLUS a further \u20ac25 million in the ‘Associated’ loans. That brings the total loss to \u20ac45 Million (the \u20ac65 million loan minus the present value of \u20ac20 million). So through the wonderful workings of NAMA you and I will pick up the debt and no one ever asks the one pertinent question i.e. who is holding the \u20ac65 million that was paid for the asset in the first place\u00a0 and where the fuck is it ???<\/p>\n


\n<\/span><\/p>\n

Did you know ? – trivia <\/span>
\n<\/span><\/span><\/h2>\n

If you refrigerate powdered mustard after mixing with water the ‘heat’ of the mustard will increase by 30% ! The reason for this is that there is an enzyme in the mustard which is activated once it reaches 5 degrees C. Makes a huge difference to a bit of Rib Eye \ud83d\ude42<\/p>\n","protected":false},"excerpt":{"rendered":"

To read the full article, please click on the Headline above.
\nThe ‘Associated Loans’ are the amount of money that was lent to borrowers which was secured against the anticipated increase in the value of the underlying asset! The formula used to calculate the anticipated increase in value must be the same as used to calculate the length of a piece of string…. [Read More]<\/a><\/p>\n<\/div>","protected":false},"author":149,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_uag_custom_page_level_css":"","ngg_post_thumbnail":0,"footnotes":""},"categories":[4,7,5,9],"tags":[10,11],"uagb_featured_image_src":{"full":false,"thumbnail":false,"medium":false,"medium_large":false,"large":false,"1536x1536":false,"2048x2048":false,"mh-magazine-slider":false,"mh-magazine-content":false,"mh-magazine-large":false,"mh-magazine-medium":false,"mh-magazine-small":false},"uagb_author_info":{"display_name":"eblaney","author_link":"https:\/\/wordpress-887124-4052164.cloudwaysapps.com\/author\/admin\/"},"uagb_comment_info":2,"uagb_excerpt":"To read the full article, please click on the Headline above. The 'Associated Loans' are the amount of money that was lent to borrowers which was secured against the anticipated increase in the value of the underlying asset! The formula used to calculate the anticipated increase in value must be the same as used to…","_links":{"self":[{"href":"https:\/\/wordpress-887124-4052164.cloudwaysapps.com\/wp-json\/wp\/v2\/posts\/670"}],"collection":[{"href":"https:\/\/wordpress-887124-4052164.cloudwaysapps.com\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/wordpress-887124-4052164.cloudwaysapps.com\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/wordpress-887124-4052164.cloudwaysapps.com\/wp-json\/wp\/v2\/users\/149"}],"replies":[{"embeddable":true,"href":"https:\/\/wordpress-887124-4052164.cloudwaysapps.com\/wp-json\/wp\/v2\/comments?post=670"}],"version-history":[{"count":0,"href":"https:\/\/wordpress-887124-4052164.cloudwaysapps.com\/wp-json\/wp\/v2\/posts\/670\/revisions"}],"wp:attachment":[{"href":"https:\/\/wordpress-887124-4052164.cloudwaysapps.com\/wp-json\/wp\/v2\/media?parent=670"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/wordpress-887124-4052164.cloudwaysapps.com\/wp-json\/wp\/v2\/categories?post=670"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/wordpress-887124-4052164.cloudwaysapps.com\/wp-json\/wp\/v2\/tags?post=670"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}