I read in today's Irish Times that DoF sources are claiming that NAMA will pay the "economic value" and not necessarily the "market value" for the loans.
This is a new one on me even with my amateur interest in economics. Market value is one way of establishing economic value; they are not "competing" theories of value.
There is no accepted definition of "economic value" in finance or economics and in fact the debate concerning value models is as old as economics itself. To show the divergence in this field, one example of a way of calculating "economic value" is to use a variation of Marx's labour theory of value another might use the neo-classical (i.e. capitalist) equating of economic value with the price established in a competitive market. Both in theory can be used to derive a number to represent "economic value" but obviously both are likely to diverge hugely in the values they derive.
This is like saying "we are not going to use a TOYOTA to get from A to B, we are going to use a CAR" - a Toyota is a type of car so this makes no sense.
I am being somewhat pedantic. What the DoF source intended to say is clear; we intend NOT TO USE a standard valuation model (using market value, for example) or one that can be subjected to critical scrutiny but instead want to leave ourselves the option of being able to pull figures out of thin air but claim that the value figures are based on vague and subjective "economic" considerations - not "market" ones - without specifying exactly how their valuation model works.
However, in other ways, I don't think I am being pedantic. Either the source is completely confused about the relationship between values and valuation models or else it is a deliberate attempt to make their valuation process appear in some way scientific or economically justifiable by using a technical term like "economic value" even if the term is used incorrectly.
The implication of the statement is clear 'though whether you agree with the above or not. It is intended that NAMA pay MORE than market value for the loans it is going to buy.
This is a new one on me even with my amateur interest in economics. Market value is one way of establishing economic value; they are not "competing" theories of value.
There is no accepted definition of "economic value" in finance or economics and in fact the debate concerning value models is as old as economics itself. To show the divergence in this field, one example of a way of calculating "economic value" is to use a variation of Marx's labour theory of value another might use the neo-classical (i.e. capitalist) equating of economic value with the price established in a competitive market. Both in theory can be used to derive a number to represent "economic value" but obviously both are likely to diverge hugely in the values they derive.
This is like saying "we are not going to use a TOYOTA to get from A to B, we are going to use a CAR" - a Toyota is a type of car so this makes no sense.
I am being somewhat pedantic. What the DoF source intended to say is clear; we intend NOT TO USE a standard valuation model (using market value, for example) or one that can be subjected to critical scrutiny but instead want to leave ourselves the option of being able to pull figures out of thin air but claim that the value figures are based on vague and subjective "economic" considerations - not "market" ones - without specifying exactly how their valuation model works.
However, in other ways, I don't think I am being pedantic. Either the source is completely confused about the relationship between values and valuation models or else it is a deliberate attempt to make their valuation process appear in some way scientific or economically justifiable by using a technical term like "economic value" even if the term is used incorrectly.
The implication of the statement is clear 'though whether you agree with the above or not. It is intended that NAMA pay MORE than market value for the loans it is going to buy.