Not surprisingly, the creation of the National Asset Management Agency (NAMA) is leading many people to ask about the "what, why, when, and hows" of this plan.  Only the Government has the full picture (maybe!) but below I set out what we do know, and what we don't (yet).

What/How?

NAMA, as it will be known, is obviously an asset management agency.  But what is that, in reality? 

I think that perhaps the best way to think of NAMA is of being something like a debt collection agency.  The banks will hand over about €80-90bn of development loans to the agency (at a price to be determined), and it will then do its best to collect as much as possible of those loans, in interest and capital, over the next several years. As with any debt collector, in some cases it will presumably foreclose on those loans where there doesn't seem to be much hope that the borrower will be able to pay, which means seizing the land or other assets securing the loan and putting the borrower into bankruptcy or receivership.  But with other, stronger, borrowers NAMA may allow interest to mount up instead of being paid regularly, or indeed waive the interest due completely, if - and only if - it thinks that it will get more money back that way than by foreclosing.

Whether this will be successful will of course depend on the expertise of its staff, the amount of political interference, if any, with its decisions, the extent to which the economy as a whole does or does not recover over the next few years, and so on.  But at its essence it is a fairly simple plan

Why?

There are many conspiracy theories about why this is being done, but actually there are very 'ordinary' and obvious reasons why this might be a good idea. 

Firstly, it is vital to the economy that the banks get on with lending to customers in the normal way.  But if the attention of the banks is on managing these huge loans over the next few years, and trying to get as much money back as possible, then the focus will NOT be on lending to 'good' customers, but on managing the 'bad' customers.  By creating NAMA, the banks can get on with their ordinary business.

Secondly, to some extent the skills required to be good at debt collecting are different to the skills required for lending (not that banks anywhere in the world have proved to be very good at lending either!).  So it makes sense for these debts to be managed by a new team of specialists in NAMA, rather than by the same people in the banks that made these loans in the first place. 

And then we move on to the conspiracy theories!  One of these is that the government, on behalf of the taxpayer, will deliberately pay far too much to the banks for these bad loans.  The banks will then be (reasonably) healthy after dumping the bad loans on the taxpayer, their share prices will go up, they won't be perceived as being very weak, and life goes back to normal for them.

Another, utterly different, conspiracy theory is that the government will pay far too little for the loans.  If the government pays a very low price for the loans, the banks, or some of them, might incur losses that are so large that they would be forced to go back to the government looking for more equity, which would lead to nationalisation. Remember that the legislation will apparently contain provisions to allow the government to force a bank to hand over its loans, even if it does not want to.

Every reader will  have their own opinion, but I am probably of the view that the most obvious reasons are the real ones, and certainly I find it hard to see why the government will deliberately pay too much for these loans to help out the banks.  After all, governments like to do what is politically popular and it certainly would not be popular to help out the banks in the current climate!  But as I said every reader can make up their own mind about the "Why" of all this.

When?

The government has said that it plans to pass the relevant legislation before the Dail rises for the summer.  But there is more to this than just passing a piece of legislation.  A Chief Executive and Board will have to be put in place, and a full complement of staff will have to be recruited.  Then a price for the loans will have to be negotiated (or dictated!), and the paperwork of transferring up to €80bn of loans will have to be put in place.  Even when all this is done, it will probably be many months, if not a year or more, before we have any real sense of how NAMA will operate in practice, and it will presumably be something like five years or more before it will finish up completely.

But that said, the key part of all this is the price at which the loans will be bought from the banks.  And this is not at all easy to time correctly.  It is conceivable that the Minister of Finance and the banks are already in discussions and there could be a press release any time saying that agreement has been reached on the price.  But surely it's more likely that at least a couple of months will pass, allowing the legal structures to be in place first, along with the CEO and the Board, before any deal is done?

There are of course many other, more detailed questions that can be asked about NAMA, and no doubt we will come back to this issue again over the days and weeks ahead.   

In the meantime, here is the link to the Government's own "Questions and Answers" document about NAMA.