South Canterbury Finance fiasco
Obviously the Key government was obliged to bail out South Canterbury Finance. Government Guarantee Scheme obligations aside, the teetering company relative to the size of our economy is bigger than Lehman Bros was in America.
Nevertheless, a billion or two of taxpayers money down the drain is no small matter. Could we have done better?
Too bloody right we could have.
After signing up for the Government Guarantee Scheme, South Canterbury Finance—like others—took advantage of the taxpayers’ largesse to take on far more risky loans than they would otherwise have approved.
Failure of the regulators
Was it too much to expect that when the new regulations were put in place that this type of stupidity and duplicity should have been foreseen and guarded against by our over-paid lawmakers and regulators?
If I mislead my insurance company they won’t pay out. Let’s say I take out health insurance and I tell my insurance company that I’m a non-smoker. I subsequently decide to start smoking and I don’t tell the insurer. When I contract lung cancer and die will the insurance company pay out on my policy if I’ve kept them in the dark?
After a lifetime of doing good works Mr Hubbard, his company or his advisers appear to have taken advantage of the taxpayers’ generosity to enthusiastically rort the system. Several other companies have done the same thing.
To add insult to injury, not only are the taxpayers bailing these companies and their investors out. We are also paying the investors the excessive interest which the stupid dealings encouraged. The guarantee scheme would have worked just as well if investors in failing companies had been insured against loss of investment but not loss of interest. At the very most they should receive interest at the same rate as that paid by responsible commercial banks.
To add insult to injury Bill English says it’s not such a big deal because the money was already set aside. Now I’m quite sure that our Finance Minister understands the economic concept of “opportunity cost”, but perhaps he is hoping that the average voter doesn’t.
Bring on the foreign buyers?
We can be reasonably confident that this fiasco is going to lead to a fall, perhaps that should be of further falls, and farm prices. Is this the death knell for the Prime Minister’s touching concern that Kiwis should own their own land. It will be very tempting for the government to hope that foreign investors will buy up vast acreages in order to increase land values and the values of the dodgy loan book at the same time.