Double Shot Interview: Labour's David Cunliffe calls for South Canterbury Finance inquiry; criticises trustees and investment regulation

Double Shot Interview: Labour's David Cunliffe calls for South Canterbury Finance inquiry; criticises trustees and investment regulation

Labour Finance Spokesman David Cunliffe has called on the government to launch a full and independent judicial inquiry into the circumstances around the collapse of South Canterbury Finance.

Cunliffe also cited overseas investor concerns about New Zealand's financial regulations creating the "Coldest Banana Republic" in the world and criticised trustees and auditors for not being aggressive enough.

Cunliffe said an inquiry was needed into whether the government should either have put South Canterbury into statutory management last year or whether it accepted one of the recapitalisation proposals made in August this year.

"There's an overwhelming case for a full and independent  independent judicial inquiry at arms length from government because government servants are involved in the chain here and there are questions about the chain," Cunliffe told interest.co.nz in a Double Shot Interview.

Cunliffe said there were questions about the transparency of the government's decision making and the circumstances around the decision to let South Canterbury trade on.

"That just needs to have some sunlight shone on it," he said.

There were also questions about the fairness of some bond holders and foreign investors being paid out through the deposit guarantee scheme when many other investors in finance companies had not receieved their money back.

"This is a billion dollar-plus question," he said.

Cunliffe also repeated his call for Simon Botherway, the chairman of the establishment board of the Financial Markets Authority (FMA) to step aside while the Ombudsman's office conducted an inquiry into the circumstances surrounding the Securities Commission recommendation to put Allan Hubbard's interests into statutory management.

"We've called for Mr Botherway to respectfully stand aside from his role as the chair of the establishment board of the FMA and from his current duties in the Securities Commission until that investigation is completed," he said.

'Can't have it both ways'

Cunliffe said the government could either have shut down South Canterbury earlier or allowed it to be bought in August of this year, but allowing it to trade on and then then putting it into receivership meant the NZ$200 million 'option cost' of allowing it to trade on was wasted.

"Action could have been taken much, much earlier to place SCF into a statutory management regime where the losses could have been bounded, and where the good bank part of it could have traded on," he said.

"Having paid a lot of taxpayers money to buy an option to recapitalise, why did the government not go through with it?"

"At least one of the deals on the table could have allowed the government to have walked away with a total liability in August of this year of NZ$400 million. Treasury estimates that their loss from allowing a receivership to occur is NZ$800 million. There is a huge question: Why did the government walk away from a deal that would have or could have halved the taxpayer's liability? There are huge questions about that that can only be answered by an independent judicial inquiry."

"Were there prudent actions that could or should have been taken earlier to inform the government, or if it was fully informed, why did it not act more quickly?," Cunliffe asked.

"Something  must have been wrong in the information chain for the government not to have know by at least mid 2009 that there were serious issues. What was the role of the trustees? What was the role of the auditors? Were the officials briefing the government  properly? Did ministers know but make another decision?"

"There's a theory that the government knew jolly well it was in trouble and wanted the public to get used to the idea that it could fail and kept it going. That would be a very expensive public relations exercise if that were true."

There were also questions about whether SCF was operating in breach of trust deeds, he said.

Line ball call

Cunliffe said his informants suggested a deal could have been done in August of this year that saved taxpayers money.

"I've had a lot of informants come to me, and I understand that even the advice streams within the Treasury were quite split, and some of the experienced hands in the Treaury felt that on a risk weighted basis at least one of these deals was worth pursuing," he said.

"The government can't have it both ways. If there was no reasonable basis for a recapitalisation deal in August 2010 then it should or could  have been sorted in June/July/August of 2009," he said, adding it would have been possible to write in covenants or protections for the taxpayers interests at that stage.

'Time for a cold shower'

Meanwhile, Cunliffe said he was generally concerned about the quality of financial market regulation in New Zealand and had been disturbed by what he had discovered in recent weeks when investigating the situation around South Canterbury Finance and other finance companies. He was referring to comments he made in a Red Alert blog post last week titled: "Systemic Market Failure."

"Essentially I felt like having a cold shower after I'd spent 2 weeks working through company structures, effectiveness of trustee arrangements, accuracy and probity of audits and conflicts of interest in the market," he said.

"I'm really worried that our trustee system is broken. I'm told repeatedly that issuers have an incentive to find a trustee that is not over-exuberant -- the more passive the better," he said.

"Who's policing the front line regulator and is that oversight strong enough? This is a really important issue for the FMA bill."

'Coldest Banana Republic'

"The public needs guarantees that those who are responsible for frront line market regulation have got the smarts, the ability, the guts and the backbone to carry that role off. Some of what I've seen raises realy questions about it. One broker I spoke to says he won't allow his offshore clients to invest in New Zealand domiciled and regulated investment vehicles. He insists they go through ASIC  regulated vehicles because he calls us the 'Coldest Banana Republic in the world."

"There is no point in building a pool of capital if there's no pipeline from the capital pool to the business that is robust. If it's being siphoned off through weak regulation and through self interested and shady deals. That is not ok because we will all suffer if our market does not have a reputation for integrity."

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Even though I have money in SCF I do think that Treasury has misguided the government on this one, and an inquiry is probavly justified.  If the government doesn't, Labour will surely use it as a major campaign issue in next year's election .  At that point the government will be hoping like heck the All Blacks win the World Cup- and if they don't there should be a big inquiry on that as well!

The decision to bail out bondholders and foreign investors seems arbitrary at best, or downright corrupt at worst.

I want to know why taxpayer funds have been (ab)used for this purpose.

With the disclosures we've had in Alan Bollard's recent book around the banking problems last year, I wonder if government are similarly unjustified in denying an inquiry here, as they did for the banking problems?

I'd rather not rely on someone coming out with inside information in a private book venture at a later date, especially conveniently after the election. The small cost of an inquiry could well be worth the benefit to support democracy and the integrity of our institutions - as it seems would have been the case with the requested banking inquiry - where we now know a little of what went on, thanks to Alan Bollard. (He's not all bad, eh.)

Not sure how much of Bollards book we can believe.  I think a lot of what Bollard says is made up in his own little mind.  Perhaps he'd like to think he's some sort of great saviour - many of these power crazy people are like that.  It's all about me.

Quite frankly I think he's a nut job.  Well out of his depth as RB Gov.

Lets not forget that this is the same man who stated categorically that we were not heading into recession (Dec 08 - I think).

What is his book called "Bollard Talks Bollocks"?

Whatever, however I'd really like to see these questions addressed that David Cunliffe is asking:

– was the Govt prudent and successful in minimising the liability to taxpayers in its handling of SCF?

– were the actions of regulators and decision makers at all levels transparent, appropriate and prudent?
– who wins and loses from the result and is that result seen to be fair and appropriate?

It would have been beneficial to conduct a banking inquiry it seems and I think the same is true of this issue.

Forgive me Father......but I don't think Bolly is a Meglomaniac ....but a puppet Res.Bank Governor....often presenting confusing policy that certainly has not been in the interests of an Export Led Recovery.......and yet unable to clarify ...in whose interests...the policies have been.

A Nut Job...?   no...... a disheveled  book-keeper  under the pump from the Minister to guide the ship on a voyage of the damned because the Minister's Minister thinks he has a good plan ...................or  lifeboat.

Not having read Dr Bollard's "Crisis" Book, I wonder if he metioned the Irish High Court report sent to him personally under order of a High Court Judge, warning him about a Banking Group operating under his Governance that had been caught dodging tax via cross border transactions designed specifically for the purpose.

He was also warned by the Irish that the group had been caught stealing money off its customers via a complex interest loading system.

Funny thing is that the Governor did nothing about the warning, causing the New Zealand economy to be robbed of $654 Million tax due by the same Banking group for several years, up until the IRD caught on and took them to Court last year.

Dr Bollard does claim that he was monitoring the Bank throuout the period though.

Well done Dr.

When the IRD woke up years later they discovered most of the Australian owned Banks were also dodging tax by what they politely described as "structured finance".

The total cost to the law abiding NZ taxpayer exceeded $1.3 Billion.

I guess I should read his "Crisis" to find out how much of the REAL crisis the Dr was actually awake to.

Hang on. It was labour that put the guarantee in place

Yes, Labour set up the Retail Deposit Guarantee Scheme (at the height of the global financial crisis in 2008).

And it was National who decided last month to suddenly extend the scheme to non-citizens and to those who are not tax resident in NZ.

 

I'm deeply concerned about the new 'bailout' culture being fostered by National. I doubt the public purse can afford the leaky homes, finance company and ChCh earthquake bailouts as it is. Let alone the next set of demands...

"And it was National who decided last month to suddenly extend the scheme to non-citizens and to those who are not tax resident in NZ."

Penny wise pound poor.

Spend $2 to save $1.

While it may appear unpalatable, I would rather we stopped throwing good money after bad.

The Finance Company fiasco was born during the Labour Government. After 3 car finance company's collapsed what did Labour do? Nothing! Maybe Cunliffe should be asking Lianne Dalziel why she did nothing to tighten finance company disclosure and regulations.

What would an inquiry into SCF achieve? Nothing!

The focus needs to be on what levels of regulation and reporting is needed to get restore some sort of confidence back into the investing public. Not just finance companies but the whole capital markets. Strongly regulated markets with high levels of disclosure are best for creating well-informed and efficient markets.

An enquiry would be unnecessary if all the participants in this mess were completely open, transparent and forthcoming. As Bernard Hickey states on his masthead "Helping you make financial decisions" it is essential to be able to examine the mistakes of the past. For Joe Public, the investing public and future investors this is essential. No one can make informed decisions without full disclosure. The questions that have already been asked is "why did NZ go it alone" in making non-bank Finance Houses eligible for the Government Guarantee?"  What a disaster. No other country did that. Why did NZ?. Had the Government of the day stuck to the script SCF would not have got into deep sh*t to the extent it did. Who made the ultimate decision? Clark or the RBNZ?. What was the role of the RBNZ? Why is Hubbard and the Directors being coy. What about the auditors? What about the conflicting  audits of the old auditor and the new auditor. What is the position of the NZ Institute of Accoutants. If any current or future Government wants to encourage NZers to save then they need to provide opportunities to invest. Which means either lay it all out. Put it on the table. If they cant do that then have an enquiry. Now. Not in 5 years time.
 

Any news on when they are selling some of the Assets so the TAX payer can get some money back? The heilcopters and Scales outfits? Hopefully before next election

it always intrigues me how people always assume the govt, particularly this one, are just throwing money to help out their "mates" etc....or up to some underhand dealings ( cue Wally/Wolly)

the SCF bailout decision was not something the Nats. WANTED to do!

it was done from what i can observe to prevent a greater calamity in the south island business and farming community....and to honour a Govt G/tee put in place by Labour which would've expired ( the original) next month

because most people only concern themselves with the smaller picture and rely on talkback for their info, they usually don't have the facts and that's what that intelligent but slimy Cunliffe is up to here.

Labour are so bereft of answers for situations where there is no immediate answer, so they're doing what they do best which is to snipe away at issues that they would've done worse at managing and throw up tokenism politics like then pathetic offer to reduce the price of our vegetables by a nett dollar a week...they are BLOODY VEGETABLES!

 Again, whatever, however I'd really like to see these questions addressed that David Cunliffe is asking:

– was the Govt prudent and successful in minimising the liability to taxpayers in its handling of SCF?

– were the actions of regulators and decision makers at all levels transparent, appropriate and prudent?
– who wins and loses from the result and is that result seen to be fair and appropriate?

It would have been beneficial to conduct a banking inquiry it seems and I think the same is true of this issue.

See last minute of the interview, where he gets a wee bit passionate, he's right in that we need institutions and structues that are legitimate and trustworthy so that capital/savings are not subverted/diverted away from productive investment that will help rebalance the economy, so good on him. Let's see more of the same.

Ronald, agree that there are conspiracy theorists out there, especially on blog land and talkback, which is a bit tiresome after a while,and guys like Wolly have the 'government conspiracy' viewpoint, although to be fair nobody has pulled the Jewish financial conspiracy card yet.  However, an inquiry on SCF would help clear the air because at present there's a lot of fog around it.

Muzza says:  Q-..although to be fair nobody has pulled the Jewish financial conspiracy card yet... -Q 

I didn't know there is any. Muzza tell us about.

On another subject: Muzza, I strongly believe it is Somalia, because they hijack a lot of container ship with “malicious software” on it.

 ..a number of governments with sophisticated computer skills would have the ability to create such a code. They include China, Russia, Israel, Britain, Germany and the United States. But O Murchu said no clues have been found within the code to point to a country of origin...

 Please read full story: http://www.guardian.co.uk/education/2010/sep/26/iran-computer-bug-attcks-nuclear-plants

Off Topic. Please stay on topic

I just can't help respond Mr Moderator.......if the topic is struggling to stay alive by it's own inertia you should commend Kunst for injecting something to the cyberspace that may or may not grow legs..........I am compelled to say some words now of relevance....

Cunliffe....................SFC...............Inquiry..?....................BOTHERWAY. ...there we go back on Topic. 

Off Topic - Okay I will stay on topic :-)

As a politician (paid by taxpayers), regularly appearing on your blog David C. even doesn't take part in interesting topics here. He even doesn't answer questions. Does he read the comments ?

He got pretty ratty with me when I called him " Cunny " ........... No sense of humour , these socialists .

Didn't he blog here for a spell as the Running Kun.....and...Kun Li...?

Walter it probably has more to do with David's last appearance being a record breaker and so high hopes of a repeat in the offing.

David if you want controversy you need to be controversial ....to be controversial you need more attack in your approach ...less dancing on eggshells.....more certainty about what it is you want.....and less about what you think we might want...........and that wee problem seems to be systemic in the Labor Party.....

For  what it's worth I am unsatisfied with Botherway's involvement in the matter and see a need for transparency in all transactions that surround the SFC debacle.........good luck with that.

Wow......David Cunliffe has just stirred from his slumber to realise we have Systemic market problems...........there are any number of confused.....drunk......high......disorientated..individuals who could have told you that a ....Loooooooooooooooong time back........ and so now I am disturbed that this is a revelation to you David.

Doesn't matter what the topic is because someone will come up with a conspiracy theory about most things. Kunst, the old Jewish conspiracy theory had it that Jews got themselves into positions of power (finance /government) and manipulated things from there. The likes of Hitler struck a chord in Germany when he went on about this. Like all conspiracy theories it's a load of marbles, just like Wally et al banging on about a government in league with the financiers conspiracy etc.

The moderator said I have to stay on top-ic. So, I don’t argue with you Muzza about –hmm politics.

Shalom

Muzza.........I think your confusing conspiracy theory with a blatant non disclosure of information that may give us a better understanding of just who is running the show and in whose interests......

Your statement that most bloggers on here are conspiracy whacko's is naive at best........just as an exercise start with Nixon and work forward....

I don't disagree that facts are the requirement.....but because of Legal interpretations, facts quickly become anything but....... transparency in the interests of the greater good.

"Conspiracy theories" as such, should have a place and must be respected in western societies, because journalism in general is not more then based on propaganda (often lie) by big lobby groups/ organisations/ governments.

Christov, no argument with me as I agree that SCF should have an inquiry, and yes people in power need to be accountable.  But those who bang on about effectively a government conspiracy about anything and everything are pretty tiresome. Remember Timothy McVeigh ? He was a conspiracy theorist about government.

 

Two things that amazed me about the Govt's handling of the SCF guarantee (disregarding the specious political decision "to prevent a greater calamity in the south island business and farming community" as Donald MacRonald points out, indicating the need to stop the land bubble from popping)." """" a "

1) Why did they guarantee all the interest as well as the principal? The principal I can almost understand.  But why not have just guaranteed the interest only to the risk-free rate?  Surely the excess interest being offered was all about rewarding risk, so why guarantee it? 

2) If you are going to guarantee a risky thing like a finance company, why not then monitor your investment?  By most accounts, the reason SCF went bust was using the guarantee to expand crazily.  So why did the Govt endorse that & not carry out any compliance?

Cheers to all

Did anyone ever seriously attempt to investigate the allegations that certain people in power had personal funds invested with Hubbard?

The Nats would only commission and enquiry if they were sure the result would vindicate them, because of one of the following:

1)  They feel safe, there is no incompetence or shennanigans to unveil

2)  They have manipulated the terms of reference to safeguard themselves

3)  The are able to appoint a investigator who is cosily in bed with them