Saturday, December 7, 2019

Well that's an interesting take!

On what would otherwise be dry-as-dust news of changes to bank capital ratios by the Reserve Bank.

It's Chris Trotter of course, speculating that the real reason behind these changes might be that Adrian Orr is a revolutionary in disguise:
What the new communist government of China did, in the early 1950s, was to pass a law requiring all existing capitalist businesses above a certain size to make the Chinese state a 25 percent shareholder in the enterprise. Naturally, such a large shareholding would also entitle the state to be represented on the enterprise’s board of directors. As the years passed and the new regime consolidated itself, the legislation was amended constantly. Year by year, the state’s shareholding in the enterprise was increased – along with the number of its directors.
And as Chris explains the wonderful result of all this was that the value of the shares fell until the capitalists saw the writing on the wall and got completely out, with the final kick in the nuts being that they were paid "a handful of cents on the dollar". One can almost hear Chris chuckling, "Heh, heh, heh".

It seems he wonders if something similar is in the offing here:
Like the ruthless, clear-eyed hero of the television series McMafia, the state’s representative will patiently explain to the people who used to be in charge, the new rules of the game: 
“From now on” he’ll quietly inform the Chairman and his CEO, “your bank will be obliged to meet a capital requirement of 18 percent. In two years’ time that will rise to 25 percent. Three years after that the Reserve Bank’s CR will be 33 percent.” 
“But that will ruin us!”, the Chairman and the CEO of the Aussie bank will wail. “We will have nothing to offer our shareholders.” 
“With respect to that”, the young, clear-eyed lawyer will respond, with just the flicker of a smile, “the Minister of Finance has authorised me to make you the following offer …”
The more time that passes since 1984 the more Chris pines for Old Zealand. What a sad fantasy of a democratic-socialist government that is. And while I've not dug into the historic details of China's expropriation of business in the early 1950's it doesn't sound like any Communists I ever read about anywhere. The sheer thrill of sending in "the revolutionary guards" to seize such businesses, as well as the Judge Holden murder-kick of putting business owners up against the wall with a bullet, was too irresistible.

There's also a huge dollop of historical ignorance in such thinking, uttered seemingly as a stream-of-unconscious desires:
As an added bonus, most of the by-now-former capitalists took what was left of their money and ran – to Taiwan, Singapore and the United States.
And what good did that do Communist China? All those nations did immensely better economically in the decades that followed. So much so that around 1980 even the Chinese Communist leaders decided to allow free enterprise, property rights and trading markets to appear again. The effects, first seen in rural areas, of increased food production, falling prices and increased incomes and wealth, led to such freedoms being extended into the rest of the economy, which is why China started doing better.

And without starving millions to death too. Bonus!

Mind you, I'm happy to indulge Chris's fantasy in debate since the real reasons for Orr's actions still seem unexplainable by any standard economic viewpoint, as I summarised here a few months ago with The Impact of Regulations:
Aside from many other problems with the NZ Reserve Bank analysis, Reddell points out that it would see NZ subsidiary banks with higher requirements than exist in Australia for many of the parent banks, which makes no sense, since any banking crisis that took them down would take the NZ ones with them.
So basically there will be a whole lot of extra cost caused by regulation with no measurable increase in safety. Sounds typical.
In fact it might even reduce that safety factor across the whole economy because any extra money paid in interest is money not being used to reduce private exposure to debt, which means borrowers are more exposed in the next recession.

You can also read Riddell's latest analysis of the policy. You could summarise his latest take on it that it's a pricey insurance policy that doesn't really insure against the risk it claims exists - and even that assumes the the RB has calculated those GDP costs and benefits accurately, which is doubtful given the inadequacy of the analysis seen from them in earlier cycles of this policy debate.


Wayne Mapp said...

Of course it is a fantasy. And it is only ever achievable in countries that don't have free and fair elections. Which is why there are no socialist democracies. Democracies only ever go as far as mixed economies of various persuasions.

In an era of modern integrated economies a country that tried to nationalise the banks and only pay a few cents in the dollar, would quickly find itself frozen out of international markets. I am pretty certain that New Zealanders are not about to vote for Venezuelan socialism, and any government that tried to do so by breaking just about every promise they had made to the electorate, would be out of power for many decades. Chris's fantasy might appeal to the 5 % of people who are hard left, but basically no-one else. Labour knows this, which is why we don't have CGT.

So a fantasy it will remain.

Tom Hunter said...

All good points Wayne, but what I find disturbing is that people like Chris Trotter constantly walk around saying stupid stuff like this, which can only be read as supporting what the Chinese Communists did to private enterprise folks, while also loudly claiming how much they don't support Communism and how the democratic-socialism they do support would never degrade to such authoritarian systems.

BTW - the italic emphais on "democratic" was Chris, not me. And after his little paen to the clever handling of private enterprise by the Chinese Communists in the 1950's I'm quite sure that he what he wants is democratic-socialist government.

Anonymous said...

Tom Hunter is a wee little cunt, and I don't care who knows it.

Tom Hunter said...

You mean you don't care who knows that you made such a powerful proclamation.

The Veteran said...

Anon 7.25 ... big call little man from hiding behind your anonymity ... but that's what cowards do.

Tom Hunter said...

Yes Vet, assuming that he actually meant what I think he did it is ironic that he lacked the balls to supply his name and email address.

Obviously he very much does care who knows it.

Adolf Fiinkensein said...

Such erudition! What superior command of English.

Must be a Senior Lecturer in Maori Studies from Massey.

Snowflake said...

Love your casual racism, Adolt. It’s really witty. Tommy and “the Veteran” are too craven to point it out, but you should be so proud of yourself.

RosscoWlg said...

That's a big assumption little Snowie, "casual racism," it could have been he is a senior Lectuer and is a you know any better? Thought not.

Perhaps its formal racism too... do you know the difference? Thought not.

Pehaps you are the Senior Maori Lecturer in Maori Studies and you are being racist adopting a white Anglo Saxon colonialist tag and Adolf is having a vey subtle dig?

Pogue Mahone said...

Hunter, you post your email address and I'll post mine. You are a gutless, cowardly, mother fucking toe rag.

RosscoWlg said...

Trouble is you'll never be satisfied, you'll want to see his cock next Pogie, and both his email and cock are not allowed on this site...grow up son an move on....

The Veteran said...

So Anon has morphed into Pogue Mahone which is Irish slang for Kiss my Arse. Real erudite stuff NOT. You are demonstrating an unhealthy fixation with Tom H (real name).
Seems Winston Peter's claimed mental health issues are not confined to his now ex-President. You should visit your psychiatrist soonest and have your Dr up your medication.

Snowflake said...

But nothing on Adolt’s racist comment “the Veteran”? Tommy? No? OK with you both is it?

Tom Hunter said...

Well that's a bit of a shame. Only Wayne Mapp contributed anything that was on-point for the OP, after which it was full distraction thanks to the abusive nutter "Anonymous/Pogue Mahone".

No comments even on the RB stuff itself? Nobody thinks they'll be affected by this? Nobody has any concerns about the RB process run by Orr, or the man himself? I realise that subjects like banking, capital-asset ratios and the RB are rather dry and boring subjects - but their effects are not.

Snowflake said...

Well, you’re quoting a piece of typically crazy crap by Chris Trotter, as an attempt to imply some sort of communist plot to nationalise the banks, so what do you expect? It’s hardly sober analysis now is it? Riddell also doesn’t seem to get tired of being wrong, which is why he’s no longer employed by the RBNZ. Why don’t you investigate the matter in a more balanced way, realising the challenge this might pose to your far right world view.

Tom Hunter said...

Why don't you take this opportunity to demonstrate my lack of investigation by expressing your opinions on the subject itself rather than your usual diatribe:
- "crazy" Chris Trotter
- "always wrong" Riddell
- "far right" moi.

All of which are the usual unargued assertions.

Truth is you just can't be bothered ever providing anything more - and I'm being generous in assuming you have enough knowledge of banking, finance and economics to be able to contribute some analysis of the subject.

Are the changes good? Bad? Neutral? Nothing to say along those lines have you?

Snowflake said...

Well, I know the right are at war with expertise, facts and education, but just chucking out a request for analysis into the interwebs is not likely to illicit erudite comment. This is especially the case when your supporting argument comes from Chris Trotter’s fevered brain. Your starting point is a communist conspiracy being led by the Governor of the Reserve Bank ffs. There is no evidence that that is credible, so there you go.

Reddell’ s criticism is based on what he perceives is an error of analysis, but there are very few people with sufficient knowledge and understanding of the banking regulatory frameworks to assess this assertion. However, if you look at Reddell’s musings generally and his background, he’s a contrarian who couldn’t hold his job down, so his views need to be seen through that lens. Come back with some more sober analysis.

Tom Hunter said...

Well, I know the right are at war with expertise, facts and education,....


Your starting point is a communist conspiracy...

My starting point was to express surprise and amusement that an old Lefty who always claims he's not a communist would gleefully speculate on where these rather dry technical changes would lead, being his wierd speculation of a return to almost solely government-owned banks and business in NZ. I then had a laugh at his paens to Communist China and his unsupported claims as to how they dealt with private enterprise.

Laughing at one man's strange ideas of a possible future for NZ and his even wierder (if possibly playful) suggestion that the current RB Governor is a secret revolutionary, is hardly me being concerned about a "communist conspiracy". And that's before I got to his commentators.

What I'm concerned about is that there are still idiots like this around who people pay attention to and who are in total denial about where their dopey fantasies would lead if people were stupid enough to follow them. If they were truly fringe people it would not be a concern.

As far as Riddell is concerned his articles have plenty of links to other perfectly ordinary economists who tore more than a few holes in the RB's analysis of these proposals - and did so in a sober manner. Your casual dismissal of Riddell - because of his "musings" (no explanation from you on this) and "background" (no explanation there either but given his subdued Christianity I can guess), that he's a contrarian who couldn't hold his job down (both unsupported, unargued assertions by you) - tell me that you have not even attempted to read or digest what he writes, let alone the thoughts of his well-educated and erudite commentators.

Fair enough: I tried to get something more out of you than the usual but I guess I'll just have to see a return to Sludgy land, albeit with a puckish sense of humour rather than Rage Monster!

Tom Hunter said...

... but there are very few people with sufficient knowledge and understanding of the banking regulatory frameworks to assess this assertion

All of the discussion is in laymans terms and is perfectly understandable to anybody who takes even a mild interest in the subject. There will be the occasional technical term used but they're not hard to track down.

And as I said, this is actually important stuff that will affect people's lives. There's no reason why layman should leave any subject solely to "experts" like the RB Governor and his minions.

Anonymous said...

To clarify it all. (from a non financial laymans type)

Banks don't actually have all the cash, that they are holding as deposits or have loaned.
They only have 10.5% of it all. this is known as fractional banking.

(Ian Wishart wrote about this some years ago)

The requirement for banks to now hold 18% is going to cause a few issues...

The banks need to sit on a much larger amount of money, which they cant use.
This means they will have to raise their interest rates to earn the same amount as they did before in order to stay in business, which means interest rates will go up.

This may actually be the desired effect as the reserve bank currently has few options left to 'stimulate' the economy.

The Reserve Banks Official cash rate is currently at 1%, they cant go much lower.

Other possible effects are..
The economy stalls because interest rates on loans has gone up.
Mortgagee sales start to happen because people can't pay the higher % rates.
The Australian Banks do a review as to weather it's worth staying in New Zealand, given that the Government has moved the goalposts and will likely do it again on a whim.