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Banks attacked for “profit gouging” and misleading farmers on guarantee costs (Update 2)
April 2nd, 2009Business lobby group, The Productive Economy Council (PEC), has accused banks of profit gouging and manipulation of their clients’ behaviour following the increase of long term mortgage rates over the past few weeks. Meanwhile, Federated Farmers said there was evidence banks were telling farmers that the rise of long term rates was due to the government guarantee scheme. (Update 2 to include response from Westpac.)
The PEC, led by former Hi Growth Project (Ministry of Economic Development) Trustee Selwyn Pellett, said it thought banks were “now manipulating the behaviour of their clients by talking up long term interest rates and thus signalling that further interest rate cuts are unlikely.”
Pellett said he agreed with Reserve Bank Governor Alan Bollard’s statement yesterday that the rises in long-term interest rates were unwarranted. Bollard’s statement referred to wholesale interest rates and was not specific in criticising banks for putting up mortgage rates.
“The Minister of Finance has instructed the banks to pass on reductions. The Prime Minister has requested ‘honourable’ behaviour. Dr Bollard has warned them not to underestimate the amount of anger out there in the business community, yet the banks have ignored them all. The gouging continues and the banks’ margins increase completely unchecked,” Pellett said.
“At a time when we really need ‘our’ bankers to be doing their bit to help the economy, we are clearly discovering that they are not ‘our’ bankers at all. Home country bias seems to be affecting the decision making of the banks here and that’s not in our national interest,” he said.
“Yes, we must face a slightly higher risk premium, since our foolish property policies have left us one of the most indebted countries in the world, but that margin should be small compared with what we are paying now.”
Federated Farmers said that confusion had risen among farmers who were refinancing, due to what they were being told by banks about the costs of the deposit guarantee scheme and how this affected interest rates.
“Anecdotal evidence suggests that farmers are being told by bank staff that interest rates are increasing due to the government guarantee,” Federated Farmers economic spokesman Phillip York said.
“This is adding some confusion to negotiations with farmers when refinancing or establishing new facilities. Federated Farmers urges the banks to be clear on the real nature and cost of the guarantees with clients,” York said.
“There are actually two guarantees. For our main trading banks, the cost of the guarantee may not be as great as some think or are being led to believe,” York said.
The Federation welcomed Bollard’s comments yesterday, saying: “RBNZ governor Dr Alan Bollard’s uncompromising statement makes it abundantly clear that the recent rise of long term interest rates is doing the economy a massive disservice.”
“Dr Bollard has delivered a virtuous double punch nailing both the dollar by a cent and dropping interest rates,” York said.
“The Federation contends that the banks’ recent hiking of interest rates has built already fat margins and by encouraging borrowers into fixed rate loans, are locking in high interest rates. With many farm businesses struggling in the face of the global recession and rising import prices, this trend is a major concern to Federated Farmers.”
Pellett and the PEC also called on the government to give Kiwibank some fresh capital to allow it to create tension between banks in New Zealand.
“(O)ur only New Zealand-owned bank (Kiwi Bank) has its hands tied right now due to lending ratios. But if its owners, the New Zealand Government would inject some fresh capital into it then we might be able to create some positive tension in the business lending market and see some realistic pricing,” he said.
“(I)t’s time we moved to regain economic sovereignty, which we have clearly lost.”
“We have a bank that can address the home country bias and it should be recapitalised now to allow a fair fight and allow our productive companies to get the funding they need at a price they can afford.”
“A continued failure to address bank gouging will result in ever more job losses and company failures.”
Westpac responded saying the costs of the retail and wholesale deposit guarantee schemes were partial contributing factors, but that critics who are focussed on price should welcome the banks’ ability to keep lending.
“There are many factors that have combined to result in funding being both more difficult to access and more expensive,” Westpac’s head of Agri Business Dave Jones said.
“The costs of the retail and, if used, wholesale deposit guarantees are partial contributing factors but we try to communicate the complexities that include the significant funding cost increases associated with generally attracting retail and wholesales funding in a competitive local environment, virtually closed international environment, and at a time in which risk has been significantly repriced,” Jones said.
“The reality is we are in a different world than the same time last year and that needs to be recognised. The ability to keep lending should be considered and welcomed by critics currently focused on price,” he said.
New Zealand Bankers Association spokesman John Bishop said he did not want to comment because these were commercial matters for the banks.
We have contacted the other banks for comment.
Tags: Alan Bollard, ANZ National, ASB, bill english, BNZ, Federated Farmers, Kiwibank, Long term interest rates, Ministry of Economic Development, Mortgage rates, Phillip York, Productive Economy Council, Reserve Bank of New Zealand, Selwyn Pellett, Westpac
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April 2nd, 2009 at 11:26 am
Fascinating – Jim Anderton’s Kiwibank is to become the saviour of us all.
Wonder what Roger Kerr and the BRT think of that?
April 2nd, 2009 at 11:26 am
So now all the chickens (or kangaroos ?) has finally come home to roosts.
So much for NZ independence….why don’t we just surrender and jion the federation since the evil emperor Oz and darth vader Rudd is so powerful. Luke (or John) has no chance fighting even obiwan(or Allan) light saber (talking ?) cannot help ….
All those farmers got into debt thinking good times will never end and that farm prices will only go up (like property prices) now when the milk turn sour they are all crying MOTHER….. HELP ! ! ! Sorry dude, they are holding all the cards.
April 2nd, 2009 at 11:35 am
Yes, taxpayer-subsidised mortgages for all! If only all of our banks ran at an economic loss and needed regular capital injections, we’d be in much better shape.
April 2nd, 2009 at 12:02 pm
@Kate – “Sir Jim Anderton”?
April 2nd, 2009 at 12:21 pm
“(I)t’s time we moved to regain economic sovereignty, which we have clearly lost.”
The commentator quoted in above article is grasping the nettle, something which Mr Key and Mr English, for all their supposed economic savvy, have failed to do, even with an assemblage of the countrys’ leading minds at the Economic Summit.
The way to regain Economic Sovereignty for ANY nation, is to take back the Sovereign right to create the money supply, through Bills of Credit issued by government – they are non-debt bearing, and the amounts created are balanced against the productivity of the nation, so that the money retains it’s value. The Banks currently have a license to create Money through the fractional reserve system, and then lend that, at interest, so controlling what has been called the ‘Eighth Wonder of the World’ – compound interest, which transfers real wealth from the producers to the moneylenders. How else do the banks make such huge profits and wield such power world wide!! This licence needs to be taken away, leaving their function as the storage and transaction of finances, and downline lenders, not the creators and manipulators. The Banking system has had a massive failure, and have shown that the ultimate security for any monetary system is the productivity of the citizen and the natural resources of the nation, which create the goods and services, and give value to the money token that they are traded for.
Tell me where I’m wrong, or pass it on if you think I’m right.
ciao JJ
April 2nd, 2009 at 12:33 pm
“and the amounts created are balanced against the productivity of the nation,”
That will make us rich – yeah right!
April 2nd, 2009 at 1:04 pm
I know that The National bank where misleading or misinforming farmers by telling them, they expected interest rates to drop to or below %4 when this was obviously an impossibility.Now this is not going to happen, they have some angry clients out there. Farmers are complaining because they have hobsons choice. Fonterra has had a currency corrected drop in milk prices by another %6. Farmers in many cases are there own worse enemies sympathy is getting hard to find when debt continues to grow at a compounding rate of over %20. Sympathy for Fonterra has gone right out the window as they continue to look unsustainable with their present debt levels.
“Yes, we must face a slightly higher risk premium, since our foolish property policies have left us one of the most indebted countries in the world, but that margin should be small compared with what we are paying now.”
This is a rather large understatement. banks are starting to face up to large losses on their farming portfolios. There is still much more downside to come ,Risk is going to cost a lot more.
April 2nd, 2009 at 1:47 pm
1998 called, it wants its joke back.
April 2nd, 2009 at 2:46 pm
The problems outlined in this article are results of distortion in our economy. We have a glaring anomaly in our tax system. When you run a business you get clobbered with tax problems, when you invest in assets it is mostly a tax free ride.
This hole in the tax system has created a huge investment distortion, now its risking the very fabric of our society.In farming, stories a bound of farmers selling farms they paid a million for in the 80’s and 90’s, for 12 million in 2005. The problem with this is that over this period production and profitability were pretty much a flat line. We now have huge debts that simply cannot be funded out of production.This is why i am of the firm belief that we will in the future see this anomaly corrected, I have heard no argument that changes this belief. The bubbles created by such anomalies are simply too destructive.
The farmer run company that sells our milk ,mostly, (96%) as non value added product, was a victim of the high land prices continually having to pay more for milk to justify the prices being paid for land and probably some of the boards own members borrowing.This is why they have destroyed the equity of the company, in an effort to pay more and more, even if like last years record payout it had to be a accomplished with and increase in Fonterra’s debt, of 1.6 billion lets put the zero’s in 1, $600,000,000 in one year.In two years $4000,000,000 in new debt! In December 08 and January 09 farm debt increased by over $800 a cow.
I will let you in on a secret that the bankers and vested interest want to hide.
WE CANNOT SERVICE THIS DEBT ANYMORE.
WE DO NOT HAVE THE PRODUCTIVE CAPACITY.
We have a major problem we live in very dangerous times, our risk will cause interest rates to rise. We may default on our foreign debts, unless one of you is a Bill Gates or knows where a lot of oil is hidden.
Andrew
April 2nd, 2009 at 2:53 pm
Well said Andrewj – some good oil here:
http://www.interest.co.nz/ratesblog/index.php/2009/03/06/new-zealand-could-go-bankrupt-within-next-5-years-markets-believe/#comment-17877
Les Rudd
Invited Member
New Zealand Manufacturers and Exporters Association
April 2nd, 2009 at 3:12 pm
http://www.bloomberg.com/apps/news?pid=newsarchive&sid=aF1vFHFizx5s#
“Global demand has diminished because of falling incomes,” Jones said. “Agriculture always lags the rest of the economy.”
March 30 (Bloomberg) — U.S. farmers are preparing to plant record amounts of soybeans and demand for corn is falling, driving prices to the lowest levels in more than two years.Just a year after record grain costs sparked riots in Egypt and food shortages in Argentina, U.S. farmers will sow crops on a record 163.7 million acres, according to a Bloomberg News survey of 24 analysts and traders last week. Soybean fields will expand by 4.5 percent. While corn acreage will slip 1.5 percent, the recession will force livestock, dairy and ethanol producers to cut purchases, leaving the highest inventories for March in two decades, the survey shows.
———————————————————————————————————————–
When Grain is plentiful and prices drop, it gets turned into PROTIEN. Mono gastronomic animals like chickens and pigs are %80 more efficient than Ruminants. Milk is protein. We have a very serious problem its not going away. Its not like a good Red, these problems wont age well. Lets face them and get some honesty for a change.
When prices drop farmers produce more trying to increase income and hopefully make a profit. We are getting increased production heading into a recession. Its going to be a bloody Disaster.
Thanks for the kind words Les Rudd
andrew
April 2nd, 2009 at 3:26 pm
And now ‘Let the trade wars begin’
http://www.telegraph.co.uk/finance/financetopics/g20-summit/5091141/G20-summit-Barack-Obama-set-for-clash-with-European-and-Asian-export-powers.html
Im becoming a compulsive poster, tell when Im obsessive Compulsive would you.
April 2nd, 2009 at 3:45 pm
Don’t worry Andrew mate, we don’t mind
Just make sure you don’t get oos and stand up and do some stretches every so often to get rid of the computer hunch (we’ve all got it here).
I can’t wait to see shots of Sarkozy storming out of the G20 trying to look like he’s the only one who really wants to tackle the world’s problems. Nothing like the sight of an angry Frenchman.
The photo in your link makes it look like they’re praying
Cheers,
Alex
April 2nd, 2009 at 4:02 pm
@ Andrewj .. that’s a great article ..
Obama translation: I want every nation here to do more to produce stuff for us to consume. But all we’ll do in return is send you numbers on a computer screen, or green bits of paper we print. You won’t be able to buy anything with the numbers or paper, just ask China !!. Oh by the way, you Europeans are just horrible .. except Russia because they have lots of OIL … which we need, and in return we’ll send them numbers …. !!
April 2nd, 2009 at 4:21 pm
We should be grateful that the “other” banks are facing reality and charging enough interest to ensure remaining “real” taxpayers in NZ (those who do not derive their income from some form of Govt. payment) will not need to front for the poorly conceived deposit guarantee scheme.
Pellets comment that KiwiBank should be “given” money to “recapitalise” blows what little credibility he may have. The aussie banks are charging interest to cover risk as no-one is going to “give” them money to recapitalise! They compete on the REAL world market.
As for Andrewj and risk.
He has nailed it again. A large proportion of debt to agriculture is not capable of being repaid. The gap between income and costs was small enough at $7 plus per kgMS. At projected prices on most scenarios, many will be using borrowing to survive – if they can get it.
But then again, the NZ Govt is using borrowing to keep non-real taxpayers relatively calm and hoping to stay alive too.
(No wonder Helen Clark had such a smirk on her face on TV news……)
If by some remote chance, some farms actually start to repay debt, the sums involved will immediately put them into top tax bracket as well.
So the current situation in agriculture is risky. Farmers should not complain that their greed compelled them to borrow from banks far past what any productive value would have justified.
No matter what any potential wizard from any vested interest entity may try to argue, NZ farmland has a biological limit to increases in profit. The fact that all the R&D and extension plus increased farm land into dairy over the past 5 years has resulted in almost no increase in total MS produced should make this fact dawn on policy makers in NZ……sometime?
To encourage the obssessive Andrewj
” WE CANNOT SERVICE THIS DEBT ANYMORE.
WE DO NOT HAVE THE PRODUCTIVE CAPACITY.”
without a major change in the prevalent mind set that NZ agriculture now holds at all levels.
April 2nd, 2009 at 5:20 pm
“This is why they have destroyed the equity of the company, in an effort to pay more and more,”
Good post Andrewj. The dairy farmers wanted the $$ for themselves (rightly or wrongly) and constrained the company to using debt to grow. Now debt is expensive, hard to get and hard to fund.
If John Key was thinking of supporting F & P, he will certainly help out Fonterra. The banks are in there as well, the efforts they put into managing Affco and SFF show they cannot afford to let Fonterra get into too much trouble.
School milk anyone?
April 2nd, 2009 at 5:28 pm
People I don’t want to sound like a naïve young man (which at 51 I am not) but we can change this country and we can make it a better place for our grandchildren than it was even when we were kids.
Yes we have been screwed with debt and pyramid based wealth creation engines based on property. It has served a few people well but the country? not at all. As I keep saying you buy a house (or farm) for x and sell it for 2 x and someone else buys it for 3 x and then 4 x and we all feel good?. But what’s actually happened is
• we have the same asset we started with,
• created no jobs
• got our national debt to GDP ratio to be one of the worst in the world.
• Housing affordability is now one of the worst in the western world
• and we have one of the lowest levels of productivity.
Getting richer??? I don’t think so. Pyramid selling schemes always work for those at the top and our passive based investments are no different. Now try and tell the people at the top of that pyramid that you’re going to unwind the system that made them wealthy (wealthy at the country’s expense mind) and you will see the push back you are seeing now. I suspect people really do vote and act on self interest alone and bugger the country.
I want to see this country prosper through taking good ideas to market and winning on a global stage. As an example and to show i am not envious the companies I have co founded have this year (founded in 2001) exported over $70 million and created 170 jobs (not all in New Zealand) at twice the average wage. That’s what we need lots more of. We can change our fortunes as a nation but not as a nation of just farmers, property speculator and moaners. We need entrepreneurs with great ideas and lots more productive businesses that create real and sustainable jobs. I want a high wage, high tech, high growth and sustainable economy and we can do it. Shit what have we got to lose as even at our best we have a low wage, low tech, low growth and unsustainable economy. Tell me how farming alone is going to double our exports and what will New Zealand look like if it does. Tell me how property speculators are going create jobs for your kids and repay the mountain of debt they have created. It’s time for a change people but it starts with regaining economic sovereignty as that’s the key.
April 2nd, 2009 at 5:37 pm
sj
its not that simple,are you suggesting that the Govt somehow guarantee an extra and wait for it, 14 billion of Fonterra debt and 42 billion of farm debt, or allow Fonterra, somehow to borrow more to continue to make unrealistic and un-affordable payouts. What ever happens, long term milk payouts will drop,farm values will fall and somebody will lose a lot of money. The problem is huge its non retractable and, our govt I doubt has the resources to fix it and I dont think the Taxpayers have the will. Its time some large scale farmers with enormous debt started reading the fine print on the Mortgage im sure their bank managers are.
April 2nd, 2009 at 5:55 pm
Re. the property issue, see:
http://www.interest.co.nz/ratesblog/index.php/2009/03/24/opinion-5-reasons-why-house-prices-dont-represent-fair-value/#comment-19740
And don’t forget:
“Madness is defined as continuing to do the same thing, and expecting change.”
Les Rudd
Invited Member
New Zealand Manufacturers and Exporters Association
April 2nd, 2009 at 7:03 pm
Go Selwyn!
How about we write to JK and suggest as an initial measure, he re-instate, or better yet (!) improve on the tax credits for R&D previously introduced by the Labour government.
If that gets us anywhere, we write to him subsequently to suggest the introduction of regulatory (tax) disincentives for investment in housing and land.
And then if that gets us somewhere as well, perhaps we write again suggesting he provide free course fees for all students in their 3rd and subsequent years of University based programmes in IT, science and engineering.
High tech, high wage, high growth – defining what such an economy needs is really not rocket science. But, instead from the jobs summit we get to fund a bike path. I take it you didn’t have an invite!
April 2nd, 2009 at 7:26 pm
Actually I was there but the ideas that would make a difference have yet to see the light of day. What’s come out so far is unworthy of the people who put in great ideas and a lot of effort. Selwyn
April 2nd, 2009 at 7:46 pm
Yet to see the light of day? I wonder why that is?
Well, never mind – the Treasury are pretty much signalling that the new Government is going in a number of wrong directions.
Have a read of this just out today;
http://www.treasury.govt.nz/publications/research-policy/tprp/09-01
Paraphrasing some of the summary of policy directions (haven’t read the whole report yet!) – it recommends strengthening R&D incentives, reducing investment incentives in immobile assets (land and property) – and increasing investment in mobile assets (people and businesses), and it says that the faster broadband should be targeted at business suggesting the speed needed to be competitive is there but the Govt should concentrate on regulatory effort to make it cheaper.
April 2nd, 2009 at 7:53 pm
Surely this recession is the prime chance to boot LAQC in the guts. Could be just a matter of time and timing
April 3rd, 2009 at 8:07 am
Andrewj – I agree that the problem is not simple. In fact the whole scenario is frightening and if it happened NZ would be a disaster.
There is no easy answer.
April 3rd, 2009 at 9:09 am
sj
The problem is that Fonterra needs to retain profits to reduce its debt. The only way out as a commodity producer is to reduce payments to farmers. This creates hardship for,Farmers,banks,rural communities and probably some board members. The way out is too add value but that requires an attitude change and a willingness to take a lower payout in times of product shortage, when commodity prices are sky high,higher than some value added product. In the bad times you get it back but that isnt how we think. So Fonterra has to retain profits = lower payout to farmers = lower farm prices = pain for banks and rural communities.The milk payout is going down the commodity market can do what it likes,if it goes up %50 Fonterra still needs to reduce payout below current levels. The longer we stick our head in the sand the bigger the interest bill and more debt, the more chance of total annihilation. We need an attitude change away from a short term profit driven motive. Sorry I dont see this happening we just pour some more oil on the fire.
The difference this time is the banks have some responsibility due to some shoddy lending criteria. Bollard appears hell bend on helping the banks continue to hide from the responsibility of their actions. If the banks are allowed to continue they will suck the life out of rural NZ , taking any profits away in the form of interest and debt repayment for the foreseeable future. most of us would be better off with debt destruction only %20 of the farmers carry most of the debt but their debt levels are huge.
As I said yesterday the sh*t from dairy farms isnt only in our rivers our bankers have it all over their pin striped suits and somebody needs to point it out.
April 3rd, 2009 at 4:17 pm
Kate, Andrewj, bjr and Selwyn,
Lets step back a little from the detail and look for a bigger picture.
In the last 10 years the dairy industry has grown its nominal asset base by 50-60 billion dollars but for minimal increase in milk production. Profitability has gone down as costs have risen faster than payout. The increase in asset values hasn’t come from profit, but from a bubble in farm prices paid for by a combination of increasing debt to over $30 billion and sucking in $millions of investment equity. The equity went into farms and very little into the milk processing sector i.e. Fonterra which took on even more debt. The industry boom distorted investment and profitability across the rest of agriculture. Agriculture is now a net drain on the economy – simply because it doesn’t make enough to service its $50-60 billion of debt.
Neither does the combination of Fonterra and its suppliers make for a viable dairy industry. There are three aspects to that: The Fonterra Mega co-op model has failed and now represents a business that is heavily indebted and a burden on suppliers – most of whom have no alternative milk processor; Around 30% of dairy farmers are not able to meet their debt servicing commitments – at current or likely future payouts and; Farm operating costs have increased such that they are threatening the profitability of even those farms without debt.
Prospects for higher dairy commodity prices are not good despite the recent spin. World prices have stabilised, but are unlikely to improve:
http://www.agprodecon.org/node/36
Three things need to happen to restore a viable dairy industry: Heavily indebted farms will default and be purchased by new owners at much lower asset values that should make farming more viable; Fonterra must not be allowed to drag down its suppliers – it needs to be restructured, probably into several smaller processors with lower overheads which would allow them to be internationally competitive and; Farm costs have to be reduced. Not contained, reduced.
The first requirement is drastic but self correcting. Banks will take some massive hits, so I see them making significant losses through the process. Current farm interest rates almost certainly don’t cover the risk involved. Any farmer who thinks they are paying interest rates which are too high is free to move to another bank – likely with the blessing of their current bank.
The second requirement is also self correcting but a very destructive process if allowed to get to that point. This is a case where an early understanding of the problem may allow it to be addressed short of losing all shareholdes equity, and a portion of creditors, banks and bond holders money.
The third requirement absolutely needs government leadership. Some cost increases are directly the responsibility of local or central government. More importantly government departments such as MAF and TSY are part of the problem preventing economic solutions.
What I have outlined is no longer an industry problem but a national one. NZ is certainly not going anywhere until what Tony Alexander calls the “engine room of the economy” is at least above water.
Lets put responsibility for that squarely on our elected government. The minister of agriculture is henceforth put on notice that he has 3-6 months maximum to develop a full understanding of the problem. I hope he has the ability, or at least the wisdom to look for answers outside of MAF and TSY who are part of the problem.
Targeting the minister of agriculture is a way of giving John key and the cabinet two chances to get it right. The first time they get it wrong David Carter will wear it. That knowledge may focus his mind on cuting through the crap he will initially get from his advisors.
April 3rd, 2009 at 5:42 pm
PeterR
Its sad the minister for Ag is so far down the cabinet that we have to look up his name. Its going to be a hospital pass for David carter.
I think we agree the importance of getting through to the Govt that, extra borrowing will not be able to be funded from the existing Rural export sector. This goes x100 for forestry which has sunk of the graph and who’s only hope is the Carbon tax so they can get out of what has turned into a disastrous investment. Unfortunately the carbon tax is another nail in the coffin of rural NZ’s ability to fund its debt.
The countries ability to service its debt and entitlements is looking very Dicky. Hopefully someone in Govt reads your comment and at least becomes aware of the problem.
Thanks andrewj
April 3rd, 2009 at 8:49 pm
so i guess muldoon was right all along dairy and forestry bad sheep good
April 4th, 2009 at 3:09 pm
This discussion has to go wider. Its great that those on these bloggs think about the issues and debate the way forward but we need that debate among the 4 million Kiwis that frankly today don’t even know there is a problem. Based on behaviour and comments so far perhaps a great deal of our politicians are among them. Sad but probably true.
April 5th, 2009 at 12:38 pm
Andrewj,
You are right. I had no grounds for my unreasonable expectation that the Minister of Agriculture might be interested in and capable of understanding the problem. Let alone in hoping that an effective outcome could result.
Selwyn covered it very effectively earlier in the thread. The issues are known, people are willing to contribute to solutions, but our cultural/political elite will not act if their position is in any way threatened. Meanwhile we continue to hope and expect that they will act on our behalf.
The issue:
Selwyn: Pyramid selling schemes always work for those at the top and our passive based investments are no different. Now try and tell the people at the top of that pyramid that you’re going to unwind the system that made them wealthy (wealthy at the country’s expense mind) and you will see the push back you are seeing now. I suspect people really do vote and act on self interest alone and bugger the country.
The willingness to contribute:
Selwyn: I want to see this country prosper through taking good ideas to market and winning on a global stage. As an example and to show I am not envious the companies I have co founded have this year (founded in 2001) exported over $70 million and created 170 jobs (not all in New Zealand) at twice the average wage.
And on those at the jobs summit: people who put in great ideas and a lot of effort.
The hopes:
Kate: How about we write to JK and suggest as an initial measure, he re-instate, or better yet (!) improve on the tax credits for R&D previously introduced by the Labour government.
PeterR: Lets put responsibility for that squarely on our elected government. The minister of agriculture is henceforth put on notice that he has 3-6 months maximum to develop a full understanding of the problem. I hope he has the ability, or at least the wisdom to look for answers outside of MAF and TSY who are part of the problem.
Andrewj: Hopefully someone in Govt reads your comment and at least becomes aware of the problem.
The sad reality:
Selwyn: the ideas that would make a difference have yet to see the light of day.
My translation: The jobs summit provided a couple of sops that won’t threaten existing privilege, but none of the effective solutions proposed get to see the light of day. They have been buried because in some way they threaten our cultural/political elite.
The conclusion:
The academics who have built their reputation and careers on farming being a business of asset appreciation, and the senior Treasury officials that deny NZ has a problem with asset bubbles, aren’t going to come clean and admit they were wrong or that in being wrong they caused the country great damage. In all probability they will go on to even more distinguished careers and use their power and influence to discourage or discredit anything that challenges their past records.
We aren’t going to change anything until we stop deluding ourselves that government and its ministries want to understand the issues. They don’t. If the issues were understood then we might expect them to be addressed – something which would almost certainly threaten the power and privilege the status quo provides.
April 5th, 2009 at 12:58 pm
How did I miss this thread?
John Kelly summed it up for me.
We have not had true change of government in this country since we were put into receivership by the private central banker scam in 1961. Kiwibank, pushed for by Social Credit influence within the Alliance Party, was a desperate grasp at a chance of freedom.
We have the sovereign right by already existing legislation to fund our own monetary base via created credit distributed by our own KiwiBank;
2) The Minister may borrow money from any person, organisation, or government (either within or outside New Zealand).
http://www.legislation.govt.nz/act/public/1989/0044/latest/DLM162733.html
if you read all of my thirteen years worth of collected supporting evidence here;
http://socialcreditorbust.blog.co.nz/
then come and tell me I am wrong, but you better have very good counter evidence to prove it.
April 5th, 2009 at 1:22 pm
Bernard, Alex – given you’ll be more up with the play on this issue than most, re. what Iain has shown above at his point 2) – what is actually stopping:
Kiwibanks, “owners, the New Zealand Government inject[ing] some fresh capital into it then we might be able to create some positive tension in the business lending market and see some realistic pricing,” ??
Les Rudd
Invited Member
New Zealand Manufacturers and Exporters Association
April 5th, 2009 at 4:07 pm
Les/Iain, very good question.
April 5th, 2009 at 4:51 pm
Bernard,
While we are on the general subject of NZ’s lack of accountability, I believe you were expecting Fonterra to provide you with answers to questions you had regards their interim accounts. That was over a week ago. I don’t know what questions you asked, but I think to retain credibility Fonterra needs to provide answers to the following questions:
Why aren’t we getting accurate information on dairy prices? In NZD terms these have dropped for butter, cheese and milk powders, but we have Fonterra saying that prices are improving. Cheese and butter prices are down even in USD terms.
The timing of the Fonterra bond issuance in relation to the release of interim financial data is highly questionable. Financial information provided in an interview in February stated that Fonterra’s Debt Equity ratio was 57% when it must have been known that it was much worse than that. How is it possible to get an A+ credit rating given the amount of liabilities revealed in the interim accounts? The bond coupon must be far too low given the associated risk.
Where are contract supply dairy farmers going to find $400 million to fund share purchases? Banks aren’t going to simply front up with the money because the shares keep losing value. Share redemption risk must now be extreme from several sources: A reduction in production intensity in response to lower payout; Farmers choosing to cash out before shares devalue further and; Dairy farmers going under.
How can Fonterra contemplate paying out $5.10 when it has lost $1.2 billion in equity over the last 14 months? The Mega co-op model itself must now be under threat.
April 5th, 2009 at 5:42 pm
Yes. Interesting thread.
Appreciate some of PeterR’s comments and challenges.
“The academics who have built their reputation and careers on farming being a business of asset appreciation,…..”
But it may help if the obsessive read through this
http://ifmaonline.org/pdf/journals/Vol3Ed3_Shadbolt_Gardner.pdf
as an example of how simple the analysis can be.
The “new-speak’ business of the firm has largely replaced the old-style production economics and has meant that land price can become dislocated from the reality of requiring sufficient cash flow to service costs. Capital gain from land asset appreciation has become the method of bolstering balance sheets which then allows further operational borrowing despite cash losses. For example, check through Landcorp accounts.
Balance sheets for these enterprises will be of interest if (as) asset prices decrease. No doubt hidden within much comment on the downturn in the “global economy” rather than deficiencies in the business methods of the firm?
But what, as Andrewj points out, will be the effect of this on the banks most heavily committed to farming?
April 5th, 2009 at 6:24 pm
Good luck Bernard, looks like you are due for an interesting interview. I think you should be already booking some time with Landcorp, who have some serious explaining to do. Drought is gripping the East coast of both Islands. Stock numbers are down we are due for several years of rebuilding herds. So now when deficits look important our farmers are about to let us down. Where’s Helen’s knowledge economy when you need it?
April 5th, 2009 at 6:27 pm
.. deleted.
April 5th, 2009 at 6:41 pm
Les,
A formal proposal has been made to the Finance Minister re point 2.
“Kiwibanks, “owners, the New Zealand Government inject[ing] some fresh capital into it then we might be able to create some positive tension in the business lending market and see some realistic pricing,” ??”
The response suggests that the current Finance Minister (like the last one) sees Kiwibank as an independent SOE and not open to government influence.
If you are interested in more detail on this proposal and the response so far then drop me a line.
April 5th, 2009 at 7:17 pm
Perhaps the economist has some advice for us
http://www.economist.com/research/articlesBySubject/displayStory.cfm?story_id=13415233&subjectID=348918&fsrc=nwl
April 5th, 2009 at 8:37 pm
raf – thanks.
I tried to make contact via your w.site and it wouldn’t work?
Pls send the extra detail on said proposal to via:
http://www.mea.org.nz/contact.aspx?subject=Feedback
and mark for my attention.
Cheers, Les.
April 6th, 2009 at 6:41 am
It is time to decide if we are a mere colony of the borderless central banking empire or a sovereign nation able to apply laws of common decency in the interest of dignity and equal opportunity to all its citizens.
April 6th, 2009 at 8:45 am
Ian did you Know about the changing world we live in. This from Sony
http://www.youtube.com/watch?v=cL9Wu2kWwSY
and on the USA mess a good interview
http://www.pbs.org/moyers/journal/04032009/watch.html
April 6th, 2009 at 10:38 pm
Andrewj – Great stats in the first one. Would have been good to see exponential debt in there.
Bill Moyers is one of the last of the old real press brigade that will never be paid off. Going through his archives is just a mine of highly researched information.
He asked of William Black in that great video link you gave “how do they get away with it” Bill of course already knows how most everyone on this planet gets away with anything. This re corporate media ownership answers his own question;
http://www.pbs.org/moyers/journal/12142007/watch2.html
This re corporate media ownership in this country might go along way to answering our question;
http://canterbury.cyberplace.org.nz/community/CAFCA/publications/Miscellaneous/mediaown.pdf
April 8th, 2009 at 5:43 am
You can add exponential debt;
http://mwhodges.home.att.net/debt.htm
to this;
http://www.youtube.com/watch?v=cL9Wu2kWwSY
wonder why the worlds resources dont stand a show under the present system;
The Millennium Ecosystem Assessment assessed the consequences of ecosystem change for human well-being. From 2001 to 2005, the MA involved the work of more than 1,360 experts worldwide. Their findings provide a state-of-the-art scientific appraisal of the condition and trends in the world’s ecosystems and the services they provide, as well as the scientific basis for action to conserve and use them sustainably.
http://www.millenniumassessment.org/en/index.aspx
http://www.stwr.org/
April 8th, 2009 at 4:34 pm
The suggstions made here would go a long way to help with this issue:
Dr Nana on the Money: Productive Economy Council
http://business.scoop.co.nz/2009/04/08/dr-nana-on-the-money-productive-economy-council/
Les Rudd
Invited Member
NZMEA
April 8th, 2009 at 4:56 pm
Les Rudd
Your scoop reference above led me to another scoop article where the NZMEA is calling for the RBNZ to cut the OCR. Read more:
http://business.scoop.co.nz/2009/04/08/nzmea-backs-calls-for-focus-on-currency-stability/
Has it ever crossed your mind or those within your body that every time interest rates are halved the debt burden is doubled over the long run.
If this is not mathematically clear just wonder that house prices have roughly quadrupled since 1982 when term government bond yields were 15%. Thus so must have debt if we are a non saving nation.
We make no permanent saving by cutting interest rates and reward bond dealers handsomely for reckless position taking when the curves are steep and there is a backstop buyer in the form of a central bank. That lost transfer of wealth to the money boys like myself (retired) will never revive a productive industrial base.
April 8th, 2009 at 5:35 pm
Stephen Hulme
I would love to hear your thoughts on the best way to revive a productive industrial base.
Also this looks right down your alley:
http://www.theatlantic.com/doc/200905/imf-advice
April 8th, 2009 at 9:03 pm
Neil C – well what a lonnngg article, but at the end of it, although the chappy presents some true facts of fraud to appear genuine, what the chappy from the IMF is steering towards is the taxpayer meeting the reparations for the banking fraud, socialising the losses and leaving the profits in the family trusts of the fraudsters who have already cashed out leaving depreciating fresh-air to the worlds superannuation funds and will not return until the taxpayers have refilled the system allowing them to buy back in at cents on the dollar.
And just in case you think you will get any reprieve by turning to the very nice men at the IMF, they are only a subsidiary of the central banking network governed by the same people that committed the frauds.
http://www.serendipity.li/hr/imf_and_dollar_system.htm
Less and the Productive Economy Council,
I believe your intentions are sincere, your end goal the same as mine, but with the intention of clarification not conflict, can I please ask some questions of what I have observed of your literature. Your aims are to have us return to the top half of the OECD based on GDP per capita, are you aware that it is widely acknowledged that GDP is far from a credible direct measure of wealth between nations.
In regard to controlling inflation by adjusting contribution rates to a compulsory superannuation scheme, I believe that the test of time will expose the compulsory superannuation scheme of Australia to be one of the greatest wealth transferring pyramid scams in history. A company has a Net Tangible Value (NTA) its current earnings and the market value of any assets it could sell. Collectively Australia’s companies have a NTA, but in excess of $50 billion a year of the compulsory savings of the common folk of Aussie were being forced into a market until it well exceeded NTA, after that point it has been based on creative accountancy and bullshit to be frank and much of the force fed savings have been skimmed by financial fraudsters, many funds are those that have been left hanging onto depreciating fresh-air while those that chucked the bananas in the gear box and sold it before it collapsed are long gone.
April 8th, 2009 at 9:28 pm
Stephen, Neil and Iain – noted, have run out of time tonight and will get back to you tomorrow. In the interim please have a look at:
http://www.interest.co.nz/ratesblog/index.php/2009/04/07/opinion-why-nzs-current-account-deficit-could-fall-to-55-of-gdp-in-12-months/#comment-20313
Haven’t looked at that article Neil, but must be about fraud as per Iain’s note, so also take a look at Hugh Pavletichs article he posted on here yesterday. (Do a search, not time to look it up for you.)
Sincerely (because that’s who we are) yours (with a sense of humour too) Les.
April 9th, 2009 at 11:44 am
Stephen, Neil and Iain – That video I referred to last night in Hugh P’s recent article is here:
http://www.interest.co.nz/ratesblog/index.php/2009/04/07/housing-bubbles-deceit/
Neil – interesting article. You might be interested in this article by Bernard, first story, about a debate of over/under supply of housing in Auz, re. work by Steve Keen:
http://www.interest.co.nz/ratesblog/index.php/2009/04/08/top-10-at-10-australias-house-price-bubble-worse-than-the-depression-us4-trln-toxic-asset-pile/
Stephen – “Has it ever crossed your mind or those within your body that every time interest rates are halved the debt burden is doubled over the long run.” We certainly recognise the negative effects of a low savings rate in NZ and the ideas proposed seek to improve that and in addition would see our CAD and risk premium reduce and the dynamics that drive it change structurally, by allowing all exporters to be more competitive. Re. the Singaporean approach, see my more liberal suggestion described here:
http://www.interest.co.nz/ratesblog/index.php/2009/03/06/new-zealand-could-go-bankrupt-within-next-5-years-markets-believe/#comment-17877
Like Neil, I’d be interested in your thoughts on further developing our productive sector please?
Iain – re. GDP, understood, GNI is probably more useful, but whatever measure it appears we have got poorer not richer, and don’t seem to know how to reverse the trend. I’ve often thought we hamstring ourselves with an over reliance on purist tradional economic theory and as an alternative the two texts listed below take a ‘complex adaptive systems’ approach. I have completed reviews of them that can be down loaded from the NZMEA website:
Culture and Prosperity: the truth about markets – why some nations are rich but most remain poor. John Kay, 2003, Harper Business.
The Origin of Wealth – Evolution, Complexity, and the Radical Remaking of Economics. Eric D. Beinhocker, 2006, Harvard Business School Press.
from the top part of this page:
http://www.mea.org.nz/events.aspx
It’d be good to get your comments on this thinking?
Re. Auz’s comp super scheme – at least we might be able to learn something from that situation and know what to avoid. So it isn’t a reason not to consider that approach, plus see my more liberal suggestion, referred to above. Given more choice involved, do you think that might reduce the risks you associate with the Auz scheme?
And, because we need good workable ideas, I’d be interested in your thoughts on further developing our productive sector as well please?
April 23rd, 2009 at 11:02 am
Bernard: KPMG seem to have a different take and one more consistant to my own as follows
The banks’ combined profit for the 2008 year was $3.27 billion, a modest 1.6 per cent improvement on 2007. However that was affected by changes to financial reporting standards.
A normalised measure of the banks’ underlying performance showed a 5.1 per cent improvement or 3.7 per cent in the case of the big four: ANZ National, Westpac, Bank of New Zealand and ASB.
Underpinning that was growth of 19 per cent, or $4.6 billion, in net interest income, reflecting an expanded loan book and an increase in average interest rates.
KPMG expected the major banks’ earnings for the six months to March 31 would also prove to be relatively strong, despite increasing bad debts.
“However, these earnings will not be sustained and impaired asset expense is likely to increase in the next few quarters,” it said.