The Dim-Post

June 30, 2009

Land of milk and money

Filed under: finance — danylmc @ 6:57 am

The Weekend Herald had a good article about the collapse of the Finance Companies and the effect on investors, angling the story around a nurse who lost her life savings:

The 62-year-old hospice nurse has had to sell her Nelson home to meet the mortgage payments on an Auckland apartment she bought through failed Blue Chip property investment scheme.

Ufton is just one of the thousands of investors who have lost money in the more than $6 billion collapse of the finance and investment industry.

Instead of looking forward to her retirement in three years, she is working longer hours to keep afloat and expecting to work until she is 70.

The retirement nest egg she hoped to have accumulated by now has been replaced with a mountain of debt after investments in Blue Chip, Bridgecorp, North South Finance and the ING Diversified Yield Fund turned into disasters.

“I wanted to be independent in my retirement,” Ufton says. “The best I can hope for [now] is a small, modest home and New Zealand super.”

The blogosphere being what it is, I guess a lot of people will just sneer at Ufton for failing to diversify her investments – but she was acting on the advice of a professional financial adviser who feels that his client has been unlucky but doesn’t appear to feel any guilt about wiping out her life savings.

I think it’s very admirable that the Herald has continued to cover the finance company collapse and subsequent fall out especially since this has failed to gain traction as a political issue – the Commerce Commission belatedly begins regulating financial advisers some time next year (I’m sure they’re quaking in their boots) but I don’t think there’s been any legislative or regulatory reaction to the finance companies themselves.

I guess the National Party finds it ideologically embarrassing that financiers operating in an admirably deregulated, highly competitive market managed to steal and/or destroy such a massive chunk of the nation’s private wealth, and (presumably) Labour is equally embarrassed that the transfer of billions of dollars from the middle and working class to a tiny handful of centi-millionaires happened under their watch (for the second time in a generation).

Politically the finance companies still seem like low hanging fruit though – it seems like an issue Peter Dunne could do something with, on the basis that he’s supposed to be a centrist that stands up for decent middle class New Zealanders, and it also seems like a pretty good platform for the Green Party – surely their notion of social justice extends to not having your life savings stolen while the Commerce Commission does nothing about it?

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35 Comments »

  1. [...] Check out the post “Land of milk and honey” over at The Dim-Post, where he comments on the NZ Herald [...]

    Pingback by Young, gifted and broke – Herald On Sunday « Credit Reporting in New Zealand – A Factual View — June 30, 2009 @ 8:08 am

  2. It really strange that last election no one was prepared to stand up for those who have lost millions of dollars
    I guess Labour considered them rich pricks who deserved it but all those whom I know were middle class tradesmen types who were putting some spare money aside for their old age….mostly labour voters who may have learnt one thing from the disaster..vote right

    Comment by rayinnz — June 30, 2009 @ 8:20 am

  3. it seems like an issue Peter Dunne could do something with, on the basis that he’s supposed to be a centrist that stands up for decent middle class New Zealanders, and it also seems like a pretty good platform for the Green Party – surely their notion of social justice extends to not having your life savings stolen while the Commerce Commission does nothing about it?

    I give you John Boscawen, ACT party: http://www.interest.co.nz/ratesblog/index.php/tag/john-boscawen/ Unexpected? Yes.

    Comment by StephenR — June 30, 2009 @ 8:27 am

  4. And how will voting right improve their lot? After all, the way the finance sector was set up was based heavily on right-wing ideology (de-regulate, market rules, weaken the role of government).

    Because, somehow, I really can’t see National bringing in measures to truly control the remaining finance companies and advisors, or to protect investors. After all, isn’t this how the market is meant to work? Some people win, some people lose, place your bets…?

    Comment by Tane W — June 30, 2009 @ 8:32 am

  5. And…more: http://www.scoop.co.nz/stories/PA0903/S00224.htm Seems keen, has Maori Party and Labour support. Early days though.

    Comment by StephenR — June 30, 2009 @ 8:41 am

  6. it’s exactly how the market is supposed to work.

    but the anti-regulation argument, which encourages laisse faire losses like this, has been in ascendance for twenty years.

    otoh, there are also people thinking that >10% returns are realistic…

    Comment by Che Tibby — June 30, 2009 @ 9:20 am

  7. otoh, there are also people thinking that >10% returns are realistic…

    I certainly did had have a bit of that impression when i was getting %8.25 in my on call account with a mainstream bank, ironically I was lucky to be too financially illiterate to have any confidence to even look at these weird finance company things.

    Comment by StephenR — June 30, 2009 @ 10:25 am

  8. waitaminute… that looks suspiciously like regulation of the finance sector… meaning, “rules to manage conduct” (which is all that regulation is.)

    we might be through the looking glass here people.

    Comment by Che Tibby — June 30, 2009 @ 10:37 am

  9. Hey Danyl, it’s the Securities Commission that will be regulating advisers rather than the Commerce Commission.

    Some believe this was enough of a political issue last year for the Labour Govt to somewhat unexpectedly extend the bank deposit guarantee to include finance companies. The theory being that cash would pour out of unguaranteed finance companies back into guaranteed banks at an even faster rate, causing yet more finance companies to go belly up in the run up to the election, costing boomers yet more of their savings and losing Labour even more votes.

    The Nats, on the other hand, may be a little reticent about kicking up a fuss about Labour’s record in this sector given the number of former National Govt ministers who served on the boards of failed finance companies, ie Doug Graham and Ruth Richardson.

    Comment by LeonT — June 30, 2009 @ 11:01 am

  10. When I can afford even one mortgage I might give a shit.

    Comment by hefevice — June 30, 2009 @ 8:10 pm

  11. Well, as a “rightie” I have to say that if you want to substantially reduce investment risk, then you have to be prepared for a much lower standard of living for everybody … actually, I’ve recently been channelling the “Damn Pissed”, a 19th century political commentator, and here’s what I heard him say recently on this topic.

    “The Limited Liability Act of 1855 continues to bankrupt honest traders around the country. How many coopers, bakers, honest thatchers and dairymen curse this Act all the way to the poor house? The Conservatives under the Earl of Derby may decry their predecessors, but what steps have they taken to reverse this iniquitous act? None. No, their constituents are quite happy to draw on the resources of the working class, while avoiding payment if their ventures go astray. Yet again, the artifices of the state have been distorted to benefit those in power.”

    Oh, and by the way, the death rate in Britain in 1855 was 22.7 per thousand. Today, it is 10.05. There you have it, clear evidence that all that right wing British and American economics has led to nothing but untold suffering.

    Comment by vibenna — June 30, 2009 @ 9:03 pm

  12. [...] at 8:05 pm · Filed under Current Events, Economics ·Tagged Speculation I’ve been tweaking Dimpost a bit over finance company collapses … although I hasten to add I think him a wonderful [...]

    Pingback by Aphorism of the day « Vibenna – Ephemera and Speculation — June 30, 2009 @ 9:35 pm

  13. wow.

    are you certain that right-wing politics are entirely responsible for the halving of the death rate over the past 154 years?

    maybe… hygiene? or… nutrition? or… reality?

    Comment by Che Tibby — June 30, 2009 @ 9:39 pm

  14. Also seems that for most of that time New Zealand had a cradle to grave welfare system, UK had the NIH, the USA had the New Deal, Great Society etc, so not sure how you could attribute it all to ‘right wing economics’.

    Comment by danylmc — June 30, 2009 @ 9:45 pm

  15. exactly. the united kingdom was actually a socialist democracy (i.e. “soft” communism) for the majority of the C20th, which was when the greatest gains in living standards and life expectancy were made.

    so… not so much the product of your mythical right-wing there.

    Comment by Che Tibby — June 30, 2009 @ 9:48 pm

  16. Right, of course. Britain had a marxist revolution didn’t it, in about 1917 I think?

    I remember being challenged at high school by a teacher who said – “What would you say if an American accused your society of being socialist?” Thought provoking stuff for a teenager. So let me turn it around. What would you say if Kim Jong Il, or Castro, or Brezhnez, or Troksky, or Mao or … you … name … them … accused you of being a capitalist.

    Try this thought experiment – which of these would you be willing to give up: the share market, limited liability companies, the right to keep profits from successful ventures, the right to pursue your debtors through the courts, a choice of suppliers in mobile phones, imported food, japanese cars, gaming consoles, advanced cancer drugs, the right for reporters to be underpaid by rapacious media moguls, the internet.

    Actually, railways are my favourite. Lefties love ‘em. But they are the product of the most rapacious capitalist processes, without which we wouldn’t have them at all.

    Ain’t capitalism great?

    Comment by vibenna — June 30, 2009 @ 10:38 pm

  17. vibenna, what the hell are you talking about?

    no-one said that Britain didn’t have capitalism in its economy. but it wasn’t *exclusively* capitalist. it had a very strong socialist ethos that redistributed taxes.

    that’s what “social democracy” means.

    the intention was to show that your statement that it was right-wing politics that halves mortality rates is simplistic beyond imagination.

    Comment by Che Tibby — July 1, 2009 @ 8:06 am

  18. Right, of course. Britain had a marxist revolution didn’t it, in about 1917 I think?

    I remember being challenged at high school by a teacher who said – “What would you say if an American accused your society of being socialist?” Thought provoking stuff for a teenager. So let me turn it around. What would you say if Kim Jong Il, or Castro, or Brezhnez, or Troksky, or Mao or … you … name … them … accused you of being a capitalist.

    You’ve totally lost me.

    Comment by danylmc — July 1, 2009 @ 8:39 am

  19. “Brezhnez, or Troksky”

    These are way better names than the reality. I shall henceforth misspell all communist leaders’ names as a sign of disrespect.

    Curse you Ba Rock Whosane Obuma!

    Comment by david c — July 1, 2009 @ 10:03 am

  20. Oh, I was trying to suggest that you arguments were anti-capitalist. But that when you scratched the surface, you would find that you were a capitalist, through and through.

    But never mind, david c has taken the thread into a much more interesting place.

    Comment by vibenna — July 1, 2009 @ 10:20 am

  21. And hygiene, nutrition etc is a function of economy. Eg access to clean water, access to clean living environment, access to medical care are all at a price.

    Comment by cj_nza — July 1, 2009 @ 11:53 am

  22. The point is that modern western economies are highly successful, and that capitalism is essential to their operation. So to moan about some people losing money through poor investments, and blame that on right-wing policies, is completely specious. If you follow those arguments all the way, then you need to get rid of the right wing policies that have been central to the creation of the wealth we all enjoy.

    The form of the argument is this.

    If capitalism is nasty, it will have nasty consequences.
    Capitalism has played an increasing role in our societies since 1855
    Our societies have become much better off since 1855
    Therefore, capitalism is not nasty.

    Comment by vibenna — July 1, 2009 @ 12:47 pm

  23. @vibenna. i’m getting the feeling that you’re likely either an accountant or a law student.

    because you have no understanding whatsoever of either economics, or logic.

    danyls’ post has nothing to do with capitalism vs. other types of economics. it is about the *actual* lack of regulation of lending, and the *actual* result.

    my advice to you is to stay away from the brown acid in future.

    Comment by Che Tibby — July 1, 2009 @ 1:04 pm

  24. Oh, I guess I misunderstood what Danyl was implying with this paragraph, then.

    “I guess the National Party finds it ideologically embarrassing that financiers operating in an admirably deregulated, highly competitive market managed to steal and/or destroy such a massive chunk of the nation’s private wealth, and (presumably) Labour is equally embarrassed that the transfer of billions of dollars from the middle and working class to a tiny handful of centi-millionaires happened under their watch (for the second time in a generation).”

    Comment by vibenna — July 1, 2009 @ 2:03 pm

  25. I think you’ve confused capitalism with anarchy, and/or nihilism. I think there should be private ownership and a free market, I don’t think people should be able to steal billions of dollars off one another with no consequences.

    Comment by Danyl Mclauchlan — July 1, 2009 @ 2:42 pm

  26. Left wing extremists like yourself only want a free-ISH market I think you shall find.

    Comment by StephenR — July 1, 2009 @ 2:45 pm

  27. “left-wing extremists”?

    vibenna is creating history out of his back-pocket, and you respond with that statement?

    Comment by Che Tibby — July 1, 2009 @ 4:26 pm

  28. Yes, it’s true, I made it up. There was no such person as Dam Pissed. I pretended simply for the sake of effect. However the Earl of Derby and the Limited Liability Act of 1855 are historical. And rather than rely on the Dam Pissed, I’ve now dug up an extract from Hansard by Lord Monteagle in 1856, railing against the extension of limited liability, and really making exactly the same points as Dam Pissed.

    The principle which the noble Duke seemed to advocate—namely, that the privilege of limited liability should be granted to every set of individuals, who at their own will and pleasure chose to establish any commercial enterprise whatever—appeared to be one of a most dangerous character, wholly unknown to the law of England, and had, indeed, been rejected by his own Government when they framed their Bill last year. It was a principle which would excite speculation and gambling, and all that the laws had hitherto done to repress those practices would become inoperative by reason of the Bills now before Parliament. … “you may prevent the formation of such companies, but you cannot prevent them, when formed, from degenerating into mere swindling engines.” Such were the words of Mr. McCulloch in his last edition of the Commercial Dictionary, and he went further, and crushed to atoms that fallacy that would include in the principles of Free Trade the power to establish commercial companies with limited liability.

    HL Deb 14 March 1856 vol 141 cc134-49

    It’s basically exactly the same argument as Danyl is making now – that capitalism doesn’t require such risky and sharp practices. The argument is not made against Blue Chip, but rather against one of the pillars of our modern capitalist economies – limited liability companies. Plus ca change, plus c’est la meme chose.

    Comment by vibenna — July 1, 2009 @ 5:49 pm

  29. @Che. Joke! :-D Pretty funny in itself that you thought I was serious :-D :-D

    Comment by StephenR — July 1, 2009 @ 7:11 pm

  30. “After all, isn’t this how the market is meant to work?”
    Well, yes, that’s why you don’t put all your eggs in one basket. One is supposed to be credulous when listening to the claims of, not only the finance companies, but of the advisers. (Although advisers I know have been warning folk away from fincos for some years. But the cries of “secured” and “first ranking” down out all else.)

    Best thing to do after receiving advise from a professional: go down to the pub and run it by your drinking mates. It’s amazing how folk can smell bullshit.

    And for fucks sake: NEVER buy off plan.

    (I couldn’t quite do the sums from that article: but the nurse may be better off to go bankrupt than pay back a mortgage that exceeds her assets. She may still be getting rubbish advice.)

    Comment by Clunking Fist — July 1, 2009 @ 8:52 pm

  31. long day. too little sleep. flu…

    sigh.

    Comment by Che Tibby — July 1, 2009 @ 9:12 pm

  32. …right wing extremists rewriting history… :-D

    Comment by StephenR — July 1, 2009 @ 9:21 pm

  33. “right wing extremist” is a tautology.

    Comment by Che Tibby — July 1, 2009 @ 9:30 pm

  34. PS. Che – we do know each other, but in perhaps a more polite incarnation. I blog ‘anonymously’ but it’s not too hard to work out who I am. Don’t want to blindside you with that. Cheers. M.

    Comment by Vibenna — July 1, 2009 @ 11:12 pm

  35. We’re on to you Don Brash!

    Comment by StephenR — July 2, 2009 @ 8:02 am


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