The government just spent the nation’s entire health corrections budget for a year refunding investors in a failed rural finance company. The PM and Finance Minister insist that they’re going to realise the value of most of the assets – maybe they will, maybe they won’t: right now the bill is $1.7 billion. Sure, given the alternatives that was probably the least shittiest option – but it’s still pretty shitty. Especially now that the details of SFC’s behaviour are emerging:
South Canterbury Finance (SCF) ramped up its risky real estate loans after it signed up to the Government’s scheme
Bad loans were the main reason for its downfall, and Mr Maier revealed the high risk tactic in an interview on TV3`s Campbell Live programme.
Asked whether it had been cynically exploiting the government guarantee, Mr Maier replied: “It might have been cynical, it might have been merely incompetent… it probably violated a lot of prudent lending criteria.”
At least this solution wiped out the owners of SCF so there’s some minimisation of moral hazard and we won’t see US style hundred million dollar bonuses paid out with taxpayer cash. Still, I’d love to know what advice Treasury were giving the Finance Minister about this liability – and how they intend to protect the taxpayer from further exploitation given that the Deposit Guarantee Scheme is scheduled to extend until 31st December 2011.
Yesterday the PM announced:
The Crown’s net liability for South Canterbury Finance is about $600 million though the Cabinet is considering other options should the firm fail, Prime Minister John Key says.
“It’s in the ballpark of $600 million” Key told the post-Cabinet media conference. That makes it about two thirds of the $900 million the government has provided for under the guarantee, he said.
But today, according to The Herald:
The Government has already made a payment of $1.7 billion to cover losses to investors in the company.
Acting Treasury secretary Gabriel Makhlouf said all depositors and stockholders on South Canterbury Finance Ltd’s register of debt securities would be repaid by the Crown and they did not need to make a claim because the Trustee had done so on their behalf.
Malhouf said Treasury had now paid the trustee in full the sum owing to investors.
Treausury spokesman Angus Barclay said a payment of $1.7 billion had been made. However the Herald understands that covers all investors including some ineligible for payment under the guarantee.
It is understood Treasury wished to make a single payment early in the process to avoid paying out interest to investors.
Update: Ah, I think I get it – $600 million is the net liability. So the trustee now cashes up all the assets and pays back the taxpayer and that should – hopefully – return about $1.1 billion.
Stuff reports that SCF is going into recievership. Should be a fun day on the currency market.
Secondary teachers’ plans to strike next month show “how disconnected they are from the real world”, Prime Minister John Key says.
Hundreds of secondary schools will be closed on September 15 as teachers strike for the first time in eight years.
Plans are also in place for rolling strikes later in the year and teachers could boycott after-school meetings if they run too late.
Often when a public figure sternly lectures teachers about how they live in a fantasy world a teacher at some low-decile public school is stabbed by a student shortly afterwards. Hopefully that won’t happen this time around. I wonder if this ‘teachers don’t live in the real world’ trope is connected with people who send their children to private schools – they visit them on parent teacher nights, see all the nice buildings and beautiful grounds and hear about all the extremely well-funded extra-curricular activities and think: ‘This seems like a great place to work! How dare they keep striking and asking for more money!’ In contrast I think about my friends who teach at low decile schools who have students who self-harm by mutilating their faces, or who present ‘discipline problems’ because they’re members of a gang and it might be dangerous to punish them. That seems quite a lot more ‘real’ than any place I’ve ever worked.
DPF posts excerpts from an essay asking:
Did environmentalism poison liberals’ historical optimism?
In the late 1960s, liberals appeared to have the better of the argument. Something approaching the realm of freedom seemed to have arrived. American workers, white and black, achieved hitherto unimagined levels of prosperity. In the nineteenth century, only utopian socialists had imagined that ordinary workers could achieve a degree of leisure; in the 1930s, radicals had insisted that prosperity was unattainable under American capitalism; yet these seemingly unreachable goals were achieved in the two decades after World War II.
Why, then, did American liberalism, starting in the early 1970s, undergo a historic metanoia, dismissing the idea of progress just as progress was being won? Multiple political and economic forces paved liberalism’s path away from its mid-century optimism and toward an aristocratic outlook reminiscent of the Tory Radicalism of nineteenth-century Britain; but one of the most powerful was the rise of the modern environmental movement and its recurrent hysterias.
I haven’t bothered reading the whole essay – based on the excerpt it seems like a waste of my time – but there are two points to be made on the general topic.
The first is that the response of social liberals (this is what Americans mean when they use the word liberal) to environmental problems is to try and find ways of addressing them, mostly through government policy and international treaties. The response of classical liberals is to pretend that the problems don’t exist – that they’re part of some global conspiracy – or that even if they do exist the correct response is to do nothing and hope that they’ll fix themselves, somehow. I think it’s obvious which of these approaches is the more responsible and intellectually robust.
The second point is that one of the tragedies of the global warming debate is that for many years the media portrayal of it was about how all our cities would be hundreds of feet underwater by the year 2005. The blame is partly that of our alarmist, scientifically illiterate media but also with members of the far left who argued that global warming and the threat of oceans flooding our malls was a reason to abandon capitalism and possibly even industrialism, so we could all live in some pre-technological communist utopia. If the consequences of global warming had been framed more moderately at the start of the debate – that it would lead to an increase in droughts, flooding, heatwaves and extreme weather events – I think the current debate around the issue would be a lot more enlightened.
Stronger hints from Key that there will be no government bailout of South Canterbury Finance. I wonder if the deciding factor was the cashflow? The money to refund debenture investors is there in the deposit scheme but if they wanted to buy a couple of hundred million dollars of toxic assets they’d presumably need to borrow the money offshore. English has delayed his trip to Asia to deal with the crisis – this is probably the most serious challenge this government has faced (at least that we’ve heard about).
It’d be nice to hear the Commerce Minister explain what steps he’s taking to prevent another disaster like the finance company collapses from occurring in New Zealand.
Reading the (very muted) signals from the Finance Minister yesterday it sounds as if they’re leaning towards letting South Canterbury Finance go into receivership, with English distancing himself from the company’s problems. It would be nice to know if this was:
- A negotiating tactic
- A least worse-case scenario arrived at after very careful consideration
- The Prime Minister continuing to exercise his ‘do-nothing and hope that it all somehow works out’ philosophy of government
No doubt TVNZ will be putting the hard questions to the PM on his Breakfast TV interview this morning.
Update: Oh my – I’ve never actually switched on the TV to watch Paul Henry interview Key before. Really makes the term ‘state owned broadcaster’ come alive, doesn’t it?
The PM was very cagey about South Canterbury Finance but frank and transparent about his daughters upcoming trip to France and his fondness for the Royal family. Television New Zealand, ladies and gentlemen!
According to the SST the government plans to buy around $500 million dollars in troubled loans from South Canterbury Finance:
The government has been looking at a plan whereby it will take over the troubled loan portfolio, probably at its face value.
South Canterbury has already taken steps to facilitate this, putting its impaired loans under the control of a separate administrative unit which has been nicknamed “the bad bank”.
Last month the company said the bad bank was administering about $500m of loans.
Under the proposal, the government would effectively buy those loans from South Canterbury, immediately giving the company a $500m cash injection.
A new owner could then take 100% control of the remainder of the company by injecting another $200m or so of cash into it, although it is believed negotiations are continuing around those numbers.
So the taxpayers are buying a finance company! Go the free market!
Snark aside, the alternative is to let South Canterbury go into receivership – but because of the Deposit Guarantee Scheme the government has massive financial liabilities to investors in the company. There would also be dire implications for the wider economy, especially in the South Island. The collapse would make Hanover look like [insert previous Finance Company collapse that looked real bad until Hanover went under].
I guess Hubbard’s supporters will see this as another part of the government’s anti-Hubbard conspiracy – spending $500 million of the public’s money rescuing Hubbard’s finance company from bankruptcy was the secret plan all along.
Hubbard’s admirers point to his long history of philanthropy as proof that he’s unlikely to defraud his investors: but financiers don’t just defraud their investors because they want to steal their money. If – hypothetically – Hubbard were to have made some poor decisions with his investors money but felt confident that he could quickly make it all back then he might feel he were doing the right thing by – temporarily – misrepresenting the books to show anticipated future profits, saving everyone unnecessary concern about the security of their savings (and himself a bit of embarrassment). But then economic conditions worsen, further loans turn bad . . .
I do think all this talk about ‘the death of ACT’ goes a bit too far. National will let Hide hang onto his seat because they don’t want to see the <5% list votes lost to the right the same way votes for New Zealand First were lost during the last election. Hide will probably only have one other MP in the next Parliament (presumably Boscowen) but it was only Hide and Roy during the 2005-2008 Parliament so that’d just be a return to the status quo.
I missed this (it was a busy week). Apparently Paula Bennett recently gave a speech to the Iwi leaders group telling them they should start providing care for abused Maori children. Fran O’Sullivan is giddy with delight:
The Maori aristocracy has turned a deaf ear to Paula Bennett’s plea to them to stump up some of their own cash so abused kids could be placed in iwi rather than state care.
True to form, the tribal leaders haven’t bothered themselves sufficiently to make a collective response to Bennett. (Although her office says she is going to explain her proposals further at the invitation of some individual iwi).
The young Cabinet minister went up in my estimation with her blunt message to the iwi leaders’ group to “put your hands in your own pockets” to help find families who could take on children from within their own iwi “because the Government doesn’t have the money for it right now, quite frankly”.
Mysteriously Bennett has yet to give a speech to the Employers and Manufacturers Association telling them they need to step up and take financial responsibility for Pakeha kids.
As far as I can tell the Maori Party has yet to respond to the news that Social Welfare wants to abdicate its responsibilities towards young Maori victims of abuse – I guess they have other priorities.