Public mood against Nama could threaten Coalition

ANALYSIS: The attitude of Green Party members to Nama is now more hostile

THE GOVERNMENT is losing the battle for hearts and minds on the National Asset Management Agency. Unless it can reverse the public mood in the coming weeks, not only will the plan for dealing with the banking crisis be undone but the Fianna Fáil-Green Party Coalition could also fall apart. The task facing Brian Lenihan is to convince the public that Nama does not represent a bailout for the greedy developers and foolish bankers who have brought the country to its knees.

That view that Nama has been designed as a way of getting developers and bankers off the hook has now taken a firm hold in the public mind. Unless the Minister and his Cabinet colleagues can convince people otherwise, the pressure on the Greens to pull out of coalition could become unstoppable.

The difficulty facing Lenihan is that the rights or wrongs of the draft Nama Bill have little to do with the hostile public mood towards the project. The fundamental problem is that after so many years of cronyism involving leading members of Fianna Fáil and almost all the prominent builders and developers in the country, the public has simply no faith in the party to deal with the consequences of the property bubble.

Lenihan’s real dilemma is that he has been left to clean up the mess left by Bertie Ahern and his pals. That was symbolised every summer for a decade by the Fianna Fáil tent at the Galway Races, and its ugly underbelly was exposed to public view at regular intervals during the hearings of the planning tribunal.

Ironically, a majority of voters didn’t seem to have a problem with either the Galway tent or the shocking tribunal revelations as they were happening. Now that the boom has turned to bust, however, the sins of the past have come back to inflame political passions at a time when cool decision-making was never more urgently required.

The Greens also have to contend with their past but from a very different perspective. Since the party’s foundation in 1981, members have campaigned against planning abuses and they can claim to have forecast exactly what would happen as a result of the property bubble. If the party was now in opposition it would be having a field day at Fianna Fáil’s expense, and would, in all likelihood, be soaring high in the opinion polls.

Instead the party is in the dreadful position of having to share the responsibility for dealing with the consequences of Fianna Fáil’s mistakes. It is hardly a surprise that members are smarting at the sustained accusations from Fine Gael and Labour that they have been sucked into a project that is nothing more than a bailout for developers and bankers at taxpayers’ expense.

The attitude of Green Party members to Nama appears to be growing more hostile by the day, in line with public opinion. That could ultimately force the party’s Ministers, who initially went along with the Nama project, to have second thoughts. In that event the Coalition could come apart, regardless of the electoral consequences.

Lenihan now has a huge task on his hands to convince the voters that the Nama plan is the least worst option available. Since the publication of the draft Bill last month he has insisted that it will not be a bail-out for developers. He has pointed out again and again that Nama will take over bank loans, at a discount, and that developers’ interests will be wiped out in the process.

So far the message has not got through, and the fact that developers and the banks appear to be happy with Nama has not encouraged public confidence. Senator Joe O’Toole reflected widespread concern about the issue during the week in a reasoned critique of the Nama project.

One of the concerns he raised was the fear that at some stage in the future developers might be able to buy back their properties from Nama at a fraction of the cost it will pay to take over the loans in question. When the draft Bill was published the Minister insisted this would not happen, but O’Toole was equally insistent that nowhere in the legislation is it specifically ruled out. He wants the Bill amended to debar former owners, directors or executives of development companies or banks connected with toxic debts from buying or having any beneficial interest in the assets being sold by Nama.

He suggested a number of other changes to the legislation involving oversight of the project by the Oireachtas and the removal of provisions that appear to give the Minister a direct role in the Nama operations. The senator also suggested that bondholders as well as shareholders should have to pay for the banks’ mistakes.

There are widely differing views on whether the bondholders, who fund the banks, should or could be asked to take some pain in the whole process. Fine Gael claims the bondholders can be forced to accept losses but the Minister is adamant that this will cause a funding crisis for the banks and ultimately for the country.

A key issue directly under the Minister’s control which goes to the core of the project is the price that Nama will pay the banks for their distressed loans. Stock brokers and the banks themselves are expecting that they will be asked to take a cut of about 20 per cent in the book value of their development loans as anything significantly higher would require them to seek further capital injections.

Politically, Lenihan will have to hit the banks far harder than this in an effort to get public backing and to keep the Greens on board. The outcome will almost inevitably be that the State will take a much bigger stake in the banks.

While the Government has set its face against formal nationalisation the State is likely to end up owning a substantial majority stake in two big banks before the process is finished.

At this stage the task facing Lenihan is to get Nama off the ground and keep the Green Party in coalition. He faces formidable obstacles on both fronts before he brings the legislation into the Dáil on September 16th.