I have had this idea floating around in my head for a few days - any reasons why it might/might not work? This is it:
Issue the €54bn NAMA bonds directly to the adult population of Ireland. (Or in their names) Absolutely even distribution, with no exceptions. Then, along with the current conditions which attach to the proposed NAMA bonds, add these:
1. Bonds can only be redeemed at nominated participating banks in the form of loan redemption/downpayment, OR paid into a long term low yielding account which cannot be accessed until such time as NAMA is wound up.
2. Bonds cannot be directly redeemed for cash value
This method delivers exactly the same amount of NAMA bonds to the same banks, and they can present them to the ECB in exactly the manner as is currently proposed. The big differences are:
- Rather than simply hoping that this money finds its way from the banks into the real economy, we are forcing this to happen, by issuing it to the banks THROUGH the real economy
- Each and every adult in the country benefits to the tune of <their share>
- Negative equity problem reduced somewhat
- Pay cuts less painful for all in society
Moral hazard I do not believe is an issue in this scenario, for two reasons:
1. Everyone is getting the same amount
2. The fact that it can be overlooked for bondholders and shareholders of banks, who backed a losing horse and are still to recieve not just their stake back, but a a premium on top, makes the whole moral hazard argument somewhat moot in this case.
So, why not?
Issue the €54bn NAMA bonds directly to the adult population of Ireland. (Or in their names) Absolutely even distribution, with no exceptions. Then, along with the current conditions which attach to the proposed NAMA bonds, add these:
1. Bonds can only be redeemed at nominated participating banks in the form of loan redemption/downpayment, OR paid into a long term low yielding account which cannot be accessed until such time as NAMA is wound up.
2. Bonds cannot be directly redeemed for cash value
This method delivers exactly the same amount of NAMA bonds to the same banks, and they can present them to the ECB in exactly the manner as is currently proposed. The big differences are:
- Rather than simply hoping that this money finds its way from the banks into the real economy, we are forcing this to happen, by issuing it to the banks THROUGH the real economy
- Each and every adult in the country benefits to the tune of <their share>
- Negative equity problem reduced somewhat
- Pay cuts less painful for all in society
Moral hazard I do not believe is an issue in this scenario, for two reasons:
1. Everyone is getting the same amount
2. The fact that it can be overlooked for bondholders and shareholders of banks, who backed a losing horse and are still to recieve not just their stake back, but a a premium on top, makes the whole moral hazard argument somewhat moot in this case.
So, why not?
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