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.