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Monday's Top 10 with NZ Mint: Why didn't BNZ talk to its financially illiterate borrowers before lending them half a million dollars?; Time to audit the big 4?; Tip-toeing back from stimulus; Dilbert

Posted in Opinion Updated

Here's my Top 10 links from around the Internet at 10 am in association with NZ Mint.

As always, we welcome your additions in the comments below or via email to bernard.hickey@interest.co.nz.

See all previous Top 10s here.

My must read today is #1 from Rob Stock. Another reason why the Reserve Bank needs to regulate bank lending much more aggressively.

1. This doesn't seem fair - Rob Stock from the Sunday Star Times reports on how BNZ is pushing a bunch of South Auckland property investors (although that seems a kind description) to sell their mortgaged homes after they were duped into buying over-priced investment properties in Taupo from now-convicted fraudster Glenn Cooper.

It turns out BNZ's loan officers didn't even talk to the borrowers to ascertain who they really were or whether they were in any fit state to take out a loan.

Is this sort of thing still happening?

The surge in 90% plus LVR lending over the last year and the loosening of credit criteria measured by the Reserve Bank suggest there is a risk.

Should a bank follow through on forcing a mortgagee sale when it didn't even stick to its own criteria when making the loan?

Can BNZ say it keeps its promise to: ""We promise if we stuff up for any reason, we'll fix it and do right by you."?

Here's the detail, as reported by the always excellent Rob Stock:

Mortgagee sales have crystallised the losses of those investors, who bought the properties at inflated prices based on valuations supplied to them. Their lawyer, Geoff Bilkey, is calling on the bank for mercy and to do the "right thing" - by cutting a deal that will allow the families to keep their homes.

Bilkey claims that, in making the loans, the bank failed to stick to its own lending criteria, did not reality-check property valuations, failed in one case to recognise it was lending for a deposit on a property with no title, failed to take adequate steps to check loan application information, and did not once pick up the telephone to speak to the borrowers before lending.

Had the bank carried out the checks most people would expect of a responsible lender, it would never have made the loans, Bilkey says. He also said had BNZ staff spoken to the borrowers, it would have realised they were financially illiterate, naive and trusting in the extreme.

2. High living - Matt Nippert also does a great job at the SST of detailing the shadowy activities of  Bahrain-based Indian Ahsan Ali Syed, who promised big, low interest loans to Terry Serepisos and others as long as they paid big fees up front...

Now where have we heard that idea before?

Ali was for a time a playboy figure in the Spanish region of Santander after his early 2011 purchase of La Liga team Racing Santander, wearing polka dot cravats, flying into town on a private jet, and travelling with an entourage of a dozen in a fleet of five Mercedes.

He talked of opening his chequebook to sign David Beckham and making this small club a legitimate contender against league heavyweights rivals Real Madrid and Barcelona FC.

In an interview given to Vanity Fair's Spanish edition in 2011, shortly before the wheels came off his La Liga football club Racing Santander, Ali claimed he attracted criticism only because of his wealth: "Why do you always attack us rich people? Why do you always attack me and people like [Bernie] Ecclestone and [Roman] Abramovich?"

Ali has not set foot in Spain since May, when accusations against WGA started to surface and players and coaches at the clubs complained of going unpaid. The club cycled through four general managers in the space of a year and after only winning four times during a 38-game season, were relegated and placed into bankruptcy.

3. Why haven't power prices fallen for consumers? - Weak demand and increased supply usually forces prices down. Why not in NZ?

Here' Jason Krupp reporting at Stuf on this strange situation.

Domestic Energy Users Network lobbyist Molly Melhuish said consumers patiently accepted higher power prices in recent years as power firms expanded their generation capacity, but now overcapacity and full hydro lakes had pushed prices sharply lower.

According to Electricity Authority figures, the wholesale electricity price was recently trading at $73 per megawatt hour, well short of the $131/MWh seen at the same time last year. However, the benefit of this power glut is not being seen on power bills.

Melhuish noted Mighty River Power had raised retail prices by 2 per cent over the last six months even as power purchase costs dropped by 22 per cent over the same period. She called the practice a "price gouging of captive consumers".

4. The difference between 'Helicopter Money' and Quantitative Easing - Very serious people continue to talk about money printing overseas and the option of central banks lending to governments to finance deficit spending. Here's former Reserve Bank of Australia Deputy Governor Stephen Grenville talking about it at VoxEU

It's as if New Zealand is in a twilight zone where such talk is verboten.

There are subtle differences between this deficit-funding operation and normal quantitative easing. First, central banks decide when to do quantitative easing and how much, while an overt monetary finance would be a joint decision with the government. This raises issues of central-bank independence: the ability to say ‘no’ to government requests for funding is an important discipline on budget expenditures. There may also be a different understanding in financial markets about the unwinding of this operation. The clear understanding is that quantitative easing will be unwound at some stage, while with overt monetary finance this might be unclear (although the distortionary impact of the banking system’s forced holding of substantial excess reserves doesn’t seem to be a satisfactory long-term arrangement).

Lord Turner (2013) is right in criticising the inflation alarmists, who carry outdated views on the relationship between money and prices. Similarly, those with a deficit fetish who argue that stimulus will be futile and harmful should be required to make their case within the current context of spare capacity.

5. Audit the big four auditors - The Guardian reports on criticism from Britain's Commerce Commission of the big four accounting firms (KPMG, EY, PwC and Deloitte).

The Competition Commission's review into how Ernst & Young, Deloitte, KPMG and PwC audit 90% of UK-listed blue-chip businesses said they were "insufficiently independent from executive management and insufficiently sceptical in carrying out audits".

While the commission found no evidence of collusion between the four, it said there was a restricted amount of competition in the market. As a result "companies are offered higher prices, lower quality and less innovation" than would be the case in a more competitive market.

6. Jeremy Grantham on the BBC talking about long term resource shortages  - Well worth a watch. HT Steven.

7. US banks and pay day loans - The New York Times has this extraordinary report. I should be surprised when I see this, but by now I'm not...

Major banks have quickly become behind-the-scenes allies of Internet-based payday lenders that offer short-term loans with interest rates sometimes exceeding 500 percent.

With 15 states banning payday loans, a growing number of the lenders have set up online operations in more hospitable states or far-flung locales like Belize, Malta and the West Indies to more easily evade statewide caps on interest rates.

While the banks, which include giants like JPMorgan Chase, Bank of America and Wells Fargo, do not make the loans, they are a critical link for the lenders, enabling the lenders to withdraw payments automatically from borrowers’ bank accounts, even in states where the loans are banned entirely. In some cases, the banks allow lenders to tap checking accounts even after the customers have begged them to stop the withdrawals.

8. A money printer extraordinaire - Reuters reports Japan is about to appoint an uber-dove to run the Bank of Japan, printing like mad to further devalue the yen. Expect a new round of rhetoric in the currency wars.

Japan's government is likely to nominate Asian Development Bank President Haruhiko Kuroda, an advocate of aggressive monetary easing, as its next central bank governor, the Nikkei newspaper reported.

The yen plunged 1.4 percent in early trade to 94.67 per dollar by 4.56 a.m. on Monday after the report Prime Minister Shinzo Abe will submit the nominations for Kuroda and two deputy governor posts to parliament this week. The incumbents leave on March 19. 

9.  Good luck with that - Reuters reports on the challenge the US Federal Reserve faces tip-toeing back from massive stimulus. 

Fed officials worry that even a small tapering of their bond-buying program could ricochet through financial markets, sharply raising longer-term borrowing costs and choking off the economic growth they have worked so hard to foster.

"We are in a world where, when the Fed starts moving toward a less-stimulative policy stance, at some point the markets are going to say 'Oh my goodness,'" said Nathan Sheets, global head of international economics at Citigroup and a former economist for the Fed's policy-setting committee.

Last week, the central bank got a taste of just how abruptly investors can react to a whiff of policy change.

10. Totally Jon Stewart on the issue of drones.

(Updated with cartoons)

We welcome your help to improve our coverage of this issue. Any examples or experiences to relate? Any links to other news, data or research to shed more light on this? Any insight or views on what might happen next or what should happen next? Any errors to correct?

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27 Comments

You cannot blame the BNZ for

You cannot blame the BNZ for being greedy...that's what the managers of the NZ economy have a right to be...with never any blame...regardless of their blatant stupidity..carelessness...indifference...inept behaviour...whatever.....being greedy and stupid at the same time is their right...the parasites are in charge...just ask Wheeler for confirmation.
That said, how many times must dumb Kiwi be run over by a fully loaded logging truck before dumb Kiwi realises it is not wise to ask a parasite for a mortgage.

Everyone in this fiasco

Everyone in this fiasco should be guilty of  Greed, Incompetence, and just plain Stupidity.
 
It is obvious BNZ is just taking the "investors" for granted as they are needed to retire the Developer's funding (most probably from the same BNZ)
 
The Lawyers in this saga is also guilty for not giving proper advise (maybe none at all for they most probably worked for the Developer as well). I suppose if the buyers are really illiterate as said, the Lawyer would be the first to know.....
 
The Develoers of course should not be blamed as they were out looking to net suckers, and it seem the did catch a few. Do the "innocent" buyers has any part to play in this ???

You're right Wolly. I thiink

You're right Wolly. I thiink it was Lord Hailsham who once told a party that there was no law against being stupid. But in Aotearoa now there is! The Supreme Court decision in Blue Chip last year dumped 800 years of Law (sanctity of contract/caveat emptor &etc) and created a legal fiction to let off dummies who had signed ASP's. NZers love affair with debt has to be protected, it's in everyones interest (pardon the pun).
Ergophobia

Consumer lending, including

Consumer lending, including home loans, is regulated under the CCCFA . The problem is that loans for investment purposes are not covered by the legislation as the assumption is that anyone borrowing to buy a second home for investment will be somewhat sophisticated. The law is being, or as been updated but not sure if the changes are in effect yet.
 
BNZs approach to these loans might fail the test for responsible lending under the CCFA but the provisions wont apply. These borrowers will need to rely on the banks good nature and that is something of an oxymoron.
The lawyers and valuers involved might be a more fruitful avenue to pursue as they do have a duty of care.

In the 1980s, because of the

In the 1980s, because of the number of dubious valuations, some of the Banks employed their own Valuers.  That was before the days of selling of their mortgages.  A Bank manager would not have been a Manager for long if he had a lot of mortgagee sales.

From my small insight into

From my small insight into the mobile mortgage managers workings they need to get mortgages to get bonuses and worse if they dont do well are sacked. Hence the MMMs who have sold them are often no longer around to "take the can" for the bad deal... "sew as ye shall reap" comes to mind for middle banking management, they get everything they deserve IMHO.
regards

Molly fails to understand the

Molly fails to understand the power companies..all of them...would fail to function should the fatcat bosses be paid less than the required millions now deemed utterly necessary in NZ for said fatcats...just ask Bill English...he is 'happy as' with the Soiled Energy management fatcat bloated salary situation...
 

Ask the Q how many retiring

Ask the Q how many retiring pollies get directorships of public and state run companies. So of course the salaries are fine, BE expects to get one or more.
regards

"...economic growth they have

"...economic growth they have worked so hard to foster"....what growth!...what was hard about imagining up hundreds of billions and dishing it out to ones friends!....

Harrrrrrrrrrrrrrrrhahahaaaaah

Harrrrrrrrrrrrrrrrhahahaaaaaha ...yurk splutter
"Meridian Energy says it's ready for partial privatisation and expects a significant uplift in operating earnings in the second half after transmission outages and heavy rainfall knocked its performance in the six months to December 31.
The state-owned power company's accounts also show a strong positive bounce in the unrealised value of its contracts to service the Bluff aluminium smelter, where the majority owner Rio Tinto is pressing to renegotiate a new long term contract to achieve lower prices." herald
Line up suckers...ignore the blather...pay no heed to the pump and dump going on....
 

Pass the KY... regards

Pass the KY...
regards

So they dont even know if

So they dont even know if they will get the contract (as the smelter may shut!) and they are claiming unrealised value.
Also, the don't want rainfall as that means that they have to lower prices... Come On... where is the incentive to build new dams/wind/solar or help customers be more effeicent.
We really ARE governed by idiots!

The national Govn wnats a big

The national Govn wnats a big return and of course makes the SOEs look good at sale time...of course that is in effect a regressive tax.
KY? or grin and bear it?
regards

RE #9; from Doug Noland’s

RE #9; from Doug Noland’s Credit Bubble Bulletin:
 
Federal Reserve Bank of St. Louis President James Bullard (February 21, 2013):  “Let me just talk a minute about Jeremy Stein’s speech – governor Stein is a Harvard finance professor – surely one of the leading finance people in the world.  And we’re fortunate to have him on the [Federal Reserve] Board of Governors.  He came out to a conference in St. Louis a couple of weeks ago and gave a speech in which he talked about potential imbalances in financial markets in the U.S. and a little bit around the world.  The first point to make would be that – my main take away from the speech - he pushed back some against the ‘Bernanke doctrine.’  The Bernanke doctrine has been that we’re going to use monetary policy to deal with normal macro-economic concerns and then we’ll use regulatory policy to try to contain financial excess.  And Jeremy Stein’s speech said, in effect, ‘I’m not sure that you’re always going to be able to take care of the financial excess with the regulatory policy.’  And in a key line, he said, ‘Raising interest rates is a way to get into all the corners of the financial markets that you might not be able to see or you might not be able to attack with the regulatory approach.’  I thought this was interesting and I would certainly listen to him.  Everyone should take heed of this.  This is an argument that maybe you should think about using interest rates to fight financial excess a little more than we have in the last few years where we’ve always said we’re going to use regulatory policies in that dimension.

This has been doing the

This has been doing the rounds in my area: how economics needs to move into this century in terms of data analysis (12 minute interview)
 

Cosma Shalizi - Why Economics Needs Data Mining

http://www.youtube.com/watch?v=oYFjDt4-hFw

Nice one. Cheers. I'll pop

Nice one. Cheers. I'll pop that in today's Top 10
Bernard

#9 I commented recently in my

#9
I commented recently in my belief that world wide there was an oversupply of investment dollars.

All this stimulus has caused a supply and demand problem in the investment world. This could have been avoided if the stimulus had gone to the people.

Now there is a real problem because these investment dollars have pushed down interest rates particularly in bonds, caused over inflated equity markets, and housing bubbles in some parts of the world.

Any attempt to rein in the stimulus will cause these interest rates to go up, equity markets and housing bubbles to collapse.

Typical, they are so obsessed with their own manipulative greed they have made things worse. That is how i see it.

National and labour are two

National and labour are two cheeks on the same bum
 
PS
heard that on RT about democrats and republicans but thought it suited our lot as well.

No , they're polls apart

No , they're polls apart ....... the Democrats fully believe that government works , it just needs to be made several times bigger , to get the economies of scale .....
 
....... whereas the Republicans know that government doesn't work , and everything they do  when in power amply proves their point ....

Just like this: Incredibly,

Just like this: Incredibly, while base pay for an American soldier hovers somewhere around $19,000 per year, contractors are reportedly pulling in between $150,000–$250,000 per year. Read article
 
Dick Cheney (R) knew the worth of a government contract while employed as chairman and CEO of Haliburton and a Vice President of the USA.

Yeah , but in the American

Yeah , but in the American Army you're more likely to be killed by friendly fire , than by the enemy .......
 
...... imagine the sense of pride one must feel , as good old Yankee built bullets or smart bombs  rip one's innards to shreds .... as you lay there under the hot desert sun , looking at bits of your intestines , scattered in the sand ....... " my own team killed me ...... yay ! ...."
 
Ah , friendly fire , how good it is to die for the cause !

#1 - this was exactly the

#1 - this was exactly the same in the US (read Dr Housing Bubble, f'rinstance).
 
The first (and only) question on the bank loan checklist:
 
' Can you Fog a Mirror?'
 
#3 - I'd have a read of AEP afore ye takes all this to heart....core argument is that all this is a trade war in disguise....too much plant/capacity, chasing too few consumers.

#6 best piece ive seen yet

#6 best piece ive seen yet from a finance person, he gets it overall....
 
regards

Food prices to climb yet

Food prices to climb yet higher?  Maybe we should all buy food futures?
"Historic Drought Projected to Persist, Worsen"
but thats OK just remember the ppl in here who said a bit more CO2 improves plant growth?
Parched conditions reduced the nation’s production potential for those two crops by about one-quarter.
http://peakoil.com/enviroment/historic-drought-projected-to-persist-worsen
"The drought already ranks as the worst, in terms of severity and geographic extent, since the 1950s. Though it’s not over yet, its economic impact appears to be severe, said Brad Rippey, a meteorologist at the Agriculture Department’s Office of the Chief Economist."
regards
 

Thats a very much weaker HSBC

Thats a very much weaker HSBC Flash Manufacturing PMI than expected - at 50.4 only just in expansion territory - I though all was now fine and dandy in China, chuckle.

Interesting graphs -

Interesting graphs - especially the oil one.
http://earlywarn.blogspot.co.nz/

Posted on … Cantabrians UNITE

Posted on … Cantabrians UNITE facebook
 
·       TV3 Reid Research Poll – Labours disaster – huge response
 
·       Housing : Hamish Rutherford of the Dom Posts weak effort
 
·       Thames Coromandel Council (Mayor Glenn Leach) actively working with Govt to sort out housing
 
·       The French being told about themselves by an American
 
·       Drunk (feathered) birds on the West Coast !
 
Hugh Pavletich