Tuesday, August 31, 2010

Major Triumph For English and NACTionalMP



For the first time in history a New Zealand finance company has been wound up with depositors receiving back every penny of their money plus all interest.

If that's not a one point seven billion dollar triumph for National I don't know what is. There are thirty thousand depositors who should remember on which side their bread was buttered when it comes around to election time.

That's what the headline and opening paragraph should read but you can count on the antique media being far away from reality. The last time anything similar happened was when NZI Bank was wound up by NZI Insurance group back in 1991 (I think) and every depositor was paid out in full. That was the first time in history a bank had been wound up without depositors taking a hit.

None of the so called professional financial reporters seems to have woken up to the fact that the gummint has taken in over $232 mil worth of deposit guarantee fees since the scheme's inception - with accrued interest now worth say $250 mil.

So when all the assets are sold and the gummint is repaid, there is every likelihood the deal will have cost the tax payer not one penny. In other words, there is enough income in the bag to offset a net loss of $250 mil. Funny how hard it is to find this odd little fact in the media.

It's interesting to note also that most of the non performing loans are said to be in the property development sector so Adolf scoffs at all the hysterical commentary talking about damage to the South Island's rural sector.

Damage, my arse. A few farmers who should never have been allowed to borrow in the first place will be sold up and their farms will continue to produce. That's as it should be and has always been - even when there were SMPs. Nobody seems to have stopped to ask the key question:-

How the hell can any farmer find himself unable to pay his interest bill when the dairy pay out is a staggering $7.10?

Sadly, one is forced to conclude that Hubbard is to finance as Crayfar is to dairy farming. Both in well over their heads.

The only question which remains unanswered for me is - how on earth did South Canterbury Finance manage to be accepted into the extended deposit guarantee scheme as recently as April this year? Who were the officials who carried out due diligence?

18 comments:

Anonymous said...

So you are happy to purchase votes for this gutless government with my tax dollars are you?

Each and every one of these greedy bastards should have lost the lot.

PM of NZ said...

"thirty thousand depositors who should remember on which side their bread was buttered when it comes around to election time"

Unfortunately the thirty thousand capitalist pigs with money to invest probably already vote NACTional.

Adolf Fiinkensein said...

Do you fellers have any idea how funny you are?

Once the receivers were called in, the deposit guarantee scheme was triggered AUTOMATICALLY. It was not a decision to be made by Bill English. The manner in which the payments were made was his decision and we can all give thanks to God that it was Key and English making it, not Cullen and Clark.

James said...

The DGS has no business existing.It just rewards,and encourages, future failure and robs non involved others of their money.

Big Government socialist bullshit rides again...

KG said...

"Big Government socialist bullshit rides again..."
Yep.
Government has no business interfering in the free market.

The Veteran said...

The rather sad level of understanding exhibited by some on this blog is proof positive of the need to implement National Standards sooner rather than later.

Yes the Govt has paid over $1.7B under the DGS.

Yes the Govt has received in the order of $250m in premiums under the scheme.

Yes the Govt now effectively owns SCF.

Yes, their assets can now be realised in an orderly manner.

Yes the net on net exposure to the taxpayer is likely to be in the low hundreds of millions.

Yes the impact did not rock the NZSX (perhaps the market was smarter the the Huddart cheerleaders).

Yes the NZ$ did take a hit.

And Yes, consider the impact if the Govt had welshed on its commitments under the DGS.

And finally, Yes SCF has to answer why it lend up to 100% of equity to new farmers who had zip zero chance of servicing that debt.

You put money into a companmy based on your assessment of the risk. SCF did not adequately quantify the risk.

And all this done by Hubbard without the aid of a computer ... nuff sai.

homepaddock said...

The government would be damned if it did and damned if it didn't over this. I'm pleased you, and the Veteran, see the good they've achieved from a very bad situation.

"How the hell can any farmer find himself unable to pay his interest bill when the dairy pay out is a staggering $7.10?"

Some may be sharemilkers who will have used the money to buy cows but won't have had any income over winter - the first milk cheque for this season won't be paid until next month.

Eric Crampton said...

Reneging on the deposit guarantee would have been worse, yes.

But that doesn't make it a great thing that the deposit guarantee scheme applied to finance companies.

KG said...

Government interference in the market is very, very seldom a good thing. Everything government touches turns to crap. It distorts the value of goods and services, encourages irresponsible behaviour and ultimately forces the taxpayers to carry both the risk and the costs of failures.
Risks which they didn't take and failures they're not responsible for.
Apologists for this kind of thing are great believers in the free market until something goes belly-up...then suddenly the socialist solution somehow becomes "responsible government".

Hamish Collins said...

A large portion of the bad debt came not from the farming sector, but the property sector.

For example, there wereInter-party loans by the former CEO (prior to Sandy Maier), and his mates, to build townhouses on Paritai Drive in Auckland.

http://www.interest.co.nz/news/scf-unlikely-recover-all-nz9-mill-loan-paritai-drive-townhouse-development-former-ceo-lachie-mcleod

Why was the ceo of a finance company grounded in agricultural/provincial supplies lended, based in Timaru, speculating in Auckland property?

Psycho Milt said...

So, thanks to this guarantee scheme (for which Labour has as much to answer for as National), people who put their money into high-risk, high return ventures aren't actually taking a risk because the govt will dip into our pockets to ensure they don't lose a cent. What is it about taxpayer-funded moral hazard you find praiseworthy, Adolf?

Like it or not, the buck for having included this basket case in the guarantee scheme stops with Key and English, and there's a lot more than 30,000 voters who won't be chuffed about coughing up millions to keep these investors from suffering a loss.

Adolf Fiinkensein said...

So, what would have been your course of action Milt, had you been treasurer?

Psycho Milt said...

Given the terms of the guarantee scheme, there weren't really any choices to be made.

However, setting the terms of the guarantee scheme in the first place was open to decision-making by English and his predecessor, Cullen, so poor decisions obviously have been made at some point.

Adolf Fiinkensein said...

Now, at that pint I can agree with you.

Anonymous said...

Let's be clear - this all Labor's fault.

Not actually Labour - Kevin Rudd's mad guarantee scheme in Oz- which had every NZ banking screaming at Cullen saying we had to do something too. And so Cullen did.

I was about to damn Cullen for letting SCF into the scheme, but, oops, facts got in the way.

$2bn flushed down the loo - Thanks Bill! Thill!

(and for all of you saying we'll get the money back - just proves you need National Standards - there is a huge difference between $2bn cash yesterday, and $1.4bn "assets" realisable sometime in the future)

Anonymous said...

At least Hubbard appears fundamentally honest and it is not much of a mark against him that he couldn't adapt and deal effectively with people who, unlike him, place money above integrity. I do wonder if the govt will make a buck out of this shambles - eventually.

Anonymous said...

"Some may be sharemilkers who will have used the money to buy cows but won't have had any income over winter - the first milk cheque for this season won't be paid until next month."

Homepaddock, are you suggesting sharemilkers are financially illiterate?

Bosco

WAKE UP said...

You guys seem to be forgetting that Dipton is the center of the universe :)