Nama has not moved to put the vast majority of big developers out of business

IS NAMA a bailout for builders? The reluctant answer is yes but not in the way that most people seem to think.

When the agency published its first annual report a few weeks ago it gave details of the sort of arrangements it is entering into with builders to recoup the debts that it has bought off the banks.

The disclosure of the way it was going about its work did lead many to claim it was a bailout for builders and we will come to that in a moment.

But the more immediate cause of anxiety was negative reaction to acknowledgement by the agency that much of the money may never be collected.

There was nothing particularly new in this and indeed it is axiomatic that there would be no need for Nama if all these debts were actually collectable.

The fact that people did not know this representation is a failure of the agency to communicate but more significantly a refusal by politicians, even at this late stage, to take responsibility for what they have done.

Nama was set up to rescue the banking system and the massive write-downs on builders’ debts that are built into its plan are for the benefit of the banks and not builders.

The simple fact was that the money has gone and these debts could not be repaid in full and the banks could not swallow the losses.

Hence the two pronged strategy aimed at letting the banks take the losses and in three out of five cases avert collapse.

First Nama buys the €72 billion worth of loans at something close to market value – an average discount 58 per cent – and then the taxpayer puts capital into the banks to help them absorb the loss.

From this perspective Nama is a bank bailout above all else.

Where the accusations of it being a builders’ bailout arises with some justification is in the context of how it works with the builders to get back what money it can.

At the time of its annual report Nama gave a hypothetical example in which a developer would be expected to repay €540 million plus working capital by sweating assets underlying loans of €1 billion bought by Nama from the banks for €480 million. If he can realise any additional cash, then he gets to keep 10 per cent of it.

It is the incentive element of these arrangements that seem to have angered an understandably cynical public.

Nama’s problem is that because it has failed to get across to people that as it bought a lot of rubbish – along with some good stuff – to facilitate a bank rescue, it will be doing very well to get 58 cent in the euro back and by and large the developer’s incentive payments will amount to small beer.

There is no inherent bailout in the approach being taken by Nama, but there is a very real risk that some developers will game it.

When it comes to cunning and mendacity they are in a whole different league to the State agency and they will clearly try and do deals in which the agreed repayment is pushed down and the amount of upside is maximised.

The danger here – although it seems a bit far-fetched – is that Nama lets them do this because some sort of inverted Stockholm syndrome takes hold in the way that hostages ended up sympathising with and joining their captors.

The more technical term for it is regulatory capture and if there is a bailout for builders in Nama it will manifest itself via this route if it has not done so already.

Somewhere along the road Nama made a decision – or more likely a series of decisions – the upshot of which was that it was better to leave as many developers as possible in business. It has moved to shut down a small number of relatively high profile ones but if Nama works as planned the vast majority will be left standing.

In theory they will be left standing in just the clothes they own and 10 per cent of what they can bring in over and above the deal they have done with Nama.

But crucially they are still standing which is alarming in itself given that it is self-evident the majority are incompetent.

More dangerous still it perpetuates big developer culture which it must be remembered corrupted the planning system along with the body politic and bankrupted the country.

The seeds of the next property crash may have just been sown.