Yes, Minister, the Nama bill is flawed

06 September 2009
By Kathleen Barrington

Anyone who believes in free markets, free speech, transparency and public accountability will struggle to support the government’s National Asset Management Agency (Nama) bill.
There is no getting around the fact that Nama is a bailout for the banks,in that the taxpayer will inject billions to relieve them of €90 billion worth of toxic assets that would otherwise sink them. The publication of the bill has triggered a debate about identifying a way in which taxpayers can be rewarded for the risks they are shouldering in buying the banks’ dodgy property assets at inflated prices.
Indeed, it is to the credit of many economists and others who have participated so vigorously in the debate that the government is, at last, showing signs of beginning to heed calls for improved risk sharing mechanisms between the taxpayer and the banks. But the debate about the risk sharing mechanism has, unfortunately, distracted attention from other worrying aspects of the Nama bill that deserve much closer scrutiny.
They include provisions gagging Nama officials in their communications with the Oireachtas; strong protections for the private residences of delinquent property developers; a lack of transparency surrounding the ownership of property acquired by Nama; potentially inadequate supervision of the accuracy of the information supplied by participating banks; and enormous powers for Nama to trample over traditional property rights.
We have been repeatedly assured by the government and its spin doctors that Nama will be accountable to the taxpayer through its contact with the Committee of Public Accounts. The bill, in fact, does provide that the chairperson and chief executive of Nama will appear before the committee when asked, while the agency will also publish an annual report. But alarmingly,the bill also contains a ‘Yes, Minister’ provision, under which the chairperson and chief executive ‘‘shall not question or express an opinion on the merits of any policy of the government or on the merits of the objectives of such a policy, or produce or send to a committee a specified document in which the chief executive officer or the chairperson questions or expresses an opinion on the merits of any such policy or such objectives’’.
In the Insider’s opinion, it would be preferable to drop this provision in favour of one that offers Nama whistleblowers legal protection when acting in good faith in the public interest.
Minister for Finance Brian Lenihan has repeatedly stated that Nama will get tough with developers who don’t meet their liabilities. But his statements sit uneasily alongside a measure contained in the bill which could protect even the Ailesbury Road residences of some troubled developers from being seized by Nama, in the event that they default on bank loans that are transferred to it.
The bill, however, does provide that a court can make an order for possession of land in favour of Nama, if the court agrees that the borrower cannot repay the sum secured by a charge and cannot sell the land. But it also specifically provides that,’ ‘where the land concerned includes a principal private residence, a vesting order only takes effect to the extent that it does not affect that principal private residence’’. The principal private residence is defined as the private residence and garden of up to one acre. There is no ceiling set on either the size or the value of that principal private residence.
This raises the spectre of defaulting property developers continuing to live in palatial splendour,even as the family in the three-bed semi is forced to pick up the tab for bailing out the banks who so recklessly lent those same developers billions of euro in the first place.
Though the government has been at pains to state that the bankers and developers who got us in to this trouble will not benefit from Nama,there are at least two key sections in the bill which indicate otherwise.
Section 110 provides that Nama may agree performance fees and profit-sharing mechanisms with participating banks, while section 148 provides that Nama may enter into an agreement with the debtor for the purpose of developing the land.
The gap between what the government has said about Nama and what is actually contained in the bill on these fronts alone is likely to raise concerns about whether the government is being frank in its communications with the public and, if not, why not.
There are also serious questions to be asked about how transparent Nama will be in the conduct of its business. Incredibly, the bill says that Nama is not required to register as owner of any security that is part of the bank asset. This will have the effect of making it difficult for interested parties to know whether or not a property has been transferred to Nama.
In addition, Nama has the power compulsorily to acquire land,to make any planning application in relation to land and to intervene in any planning application made by another person. There are concerns in legal circles that the legislation dilutes the protections which have long been afforded to an innocent party who purchases property without knowing of any other party’s claim to the title of that property. Though the bill confers enormous powers on Nama in certain respects, it pulls its punches in relation to the policing of the information supplied to it by banks.
There is a broad provision under which the participating banks can be found liable to Nama in damages for breach of representation. But,elsewhere, the legislation says merely that Nama may direct a bank’s chief executive and finance director to certify the accuracy of information it provides to Nama. Why not ‘‘must certify’’, given that the accuracy of the information supplied by the banks to Nama is key to the success of the agency?
The temptation for banks to be liberal with the truth in their dealings with Nama is enormous,given that the more the state overpays for the bank’s assets,the greater the share price performance of the banks is likely to be - and the greater the benefit is likely to be for any banker who has shares or share options. There doesn’t appear to be any penalty envisaged for individual senior bankers who fail to supply accurate information.
The good news is that Lenihan has indicated that he is open to amending his legislation following the public debate. It is the job of the opposition to ensure that he amends it appropriately in the public interest.
If Nama is the only game in town, as the government would have us believe,then we have to ensure that it is played in as open, transparent, fair and accountable a manner as possible.
We all have an interest in ensuring that Nama succeeds in its stated aims of resolving the financial crisis, achieving a recovery in the economy, restoring confidence in the banking sector, protecting the interests of taxpayers and facilitating the availability of credit.


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© Thomas Crosbie Media, 2009