The National Asset Management Agency (Nama) scheme to rescue the Irish banking system from collapse was approved by the European Commission last week, much to the relief of the government. All the signs now are that Nama will start buying in billions in bad property loans from the banks within the next few weeks.
Whether that's good or bad depends on how you look at it. It's certainly the most important thing to happen in the Irish economy in years, possibly ever.
But it's also extremely boring, which is why most people here glaze over whenever Nama is mentioned.
Readers of this column possibly feel the same way, so before we get into the heavy stuff, let's take a detour into a related issue, Ireland's zombie hotels.
The problem of our zombie hotels was big news here over the past few days, and it should be of interest to anyone thinking of coming here on vacation this year. Ireland's real hotel owners say that the zombie hotels have cut prices so low that they are being driven out of business.
When the Celtic Tiger madness was at its height, developers here built a lot of new hotels in Dublin and all over the country because they were encouraged to do so by the generous tax breaks that were available to investors.
Basically, you could write off a lot of your income tax by investing in one of these hotels, and so people piled into them without worrying too much about whether they were viable or not. The driving force was the tax breaks, not real demand from the tourist and home holiday markets.
The government's attitude was that we needed to develop tourism as much as possible. Build the new hotels and the tourists will come, was the cry.
Well, they built them and the tourists didn't come (or not enough of them), and the result is that we now have around 100 big hotels here, more than we need. The industry says that even allowing for normal tourism growth, there is over capacity of about 15,000 hotel rooms.
Many of the developers behind these hotels have gone bust, owing millions to the banks. Which means that the banks now effectively own the hotels.
They can't sell them. And they can't close them, because that would mean writing down their value by about 50%, which would not be a good thing to do before Nama buys in the associated loans. It would mean that Nama would pay the banks even less for the loans.
So the banks keep these zombie hotels open by undercutting room prices to a level that other hotels can't match. The most high profile case of zombie hotels is the D4 pair of adjoining hotels in Ballsbridge in Dublin, formerly Jurys and the Berkeley Court, two of the most exclusive hotels in the city.
They are slightly different because they are not new, but the problem is the same. Last week you could get a room in one of these hotels for €25 a night per person sharing; a few years ago a room for two would have cost over €200.
What's happened in the meantime is that one of the country's biggest developers spent a few hundred million buying the two adjoining hotels to knock them down and build a sort of mini-Manhattan on the site. He didn't get planning permission, the market collapsed and he's now more or less bust.
The banks own the hotels and they are running them at a loss. But, from their point of view, that's better than closing them down.
The same thing is happening on a wide scale around the country. The problem for the rest of the hotel industry here is that they can't compete.
They are appealing to the government to do something about the unfair competition. But so far nothing has been done to help them.
The real hotels -- as opposed to the zombie hotels, which the banks are keeping open even though they are being run at a loss -- face other problems as well at the moment. The international recession has hit tourism hard.
And in our case it's made even worse by the decline of the U.K. pound and the U.S. dollar against the euro which makes us more expensive for those tourists. To keep the foreign business, hotels here have absorbed the currency fall, further eating into their profits.
From the tourist's point of view, it means there is fantastic value to be had in the Irish hotel market this year. So if you're thinking of coming this could be the year.
All of this is just one example of how unpredictable and complicated the effects of the Nama scheme will be. A lot of people here are now questioning whether it makes sense at all. The government is insisting that the Irish banks must be saved and that there is no alternative.
But the costs involved are astronomical and the outcome is far from certain. The total loan books of the Irish banks add up to around €370 billion euro.
This was financed from deposits in the banks of €170 billion and an extra €200 billion that the banks borrowed so they could lend more.
And it is that €200 billion that has put our banks in such jeopardy. Like the hotels they now own, our banks are zombies as well, only existing because the government is underwriting them.
It's important to keep that bigger picture in mind, because it shows that the ***80 billion of bad property loans Nama is buying from the banks at a discount only solves part of their problem. The worst part, but only a part.
There has been a lot of speculation about the discount that Nama will apply to the €80 billion in loans it is buying. We may get some idea when they buy in the ***17 billion in loans owed by the country's top 10 developers which is due to happen very soon.
Up to now the discount suggested by the government has been put at 30% or 35%. But a site outside Athlone -- the big town in the center of the country -- has made people think again. The value of this land, bought for a development that never happened, has fallen by 98% from ***31 million to €600,000.
And this echoes the view of one of the most respected judges in the Commercial Court here who has said that his experience dealing with such cases in the court over the past year was that land prices have fallen by more than 80% -- in other words they have gone back to farmland values.
More than half of the property loans that Nama is buying are for sites or unfinished developments, so that puts a big question mark over the suggested 30% discount.
What all this means is that, unless unrealistic values are put on the property assets being bought, the government will end up having to pump in even more money into the banks and will end up owning all of them. The Irish banks will be bust or will be nationalized. There's no other way.
There is a growing view here that a simpler way out of this mess than the Nama route would have been to let the Irish banks go belly-up and let them be taken over by some of the big international banks.
The international bond holders who lent the Irish banks the ***200 billion would have been destroyed, which would not have done our reputation much good, but these guys took the risk. They should be paying the price, not the Irish taxpayer, who will be carrying the can for decades.
Making the outlook even more grim for our banks is the rest of their ***370 billion loanbooks. It's not as compromised as the ***80 billion in property loans, but there's an awful lot of it and businesses are going bust here every day. So the bad property loans are not the only problem.
All of this would give you a bad headache. Thankfully, the perfect solution is available -- a midweek break for two in a luxury zombie hotel down the country for the price of a few pizzas.
Either that or you can move into a zombie hotel in Dublin and live there for less than you would pay in rent for a city center apartment. It's not all bad!
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