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 . . .