Here are my Top 10 links from around the Internet at 10 to 6 pm, brought to you in association with New Zealand Mint for your reading pleasure.
I welcome your additions and comments below, or please send suggestions for Friday's Top 10 at 10 via email to bernard.hickey@interest.co.nz.
I'll pop any surplus suggestions I get into the comment stream.
1. 'We stood back and did nothing' - James Weir from the DomPost reports former BNZ chairman and current Working Savings Group chairman (and Institute of Directors President) Kerry McDonald saying the collapse of finance companies "was probably the most damaging event in our commercial history, but we stood back and did nothing."
He's right.
Here's a column I wrote for the Dominion Post on March 19, 2005. This was over two years before the collapse of Bridgecorp:
"There’s an elephant in the room and it’s getting bigger very fast. It’s now so big that it could stop economic growth in its tracks if it fell over. But trying to force it back into a safer place could actually trip it up. So everyone is waiting and hoping it can walk out the door without an accident. That could be a short wait with painful consequences. So what am I talking about? The sustainability of the amazing growth of finance companies.
"They have borrowed more than $10 billion from “mum and dad” investors in the past seven years. They have then lent this money to all manner of property developers, used car owners, small businesses and basically anyone who can’t borrow the money from a bank.
They don’t play by the rules of the banks. They don’t put some of these deposits away into very safe securities for a rainy day. They don’t have to make sure their shareholders have a good chunk of their own money at stake when they lend. Most of them are well managed and profitable. Some have been around for more than five years, but most have not.
"Many have never had to survive an economic downturn and a property slump. Some have single loans worth eight times their equity. Some have equity-to-debt ratios of less than 5 per cent. They can do this because they are virtually unregulated. The big question is what happens when the economy cools and property prices fall? What happens when one of the bigger ones falls over? Will the flow of fresh money from mums and dads dry up for the rest?
Privately, every financial bureaucrat and banker is deeply concerned. It’s also a subject few politicians really want to tackle. Helen Clark and Michael Cullen are thought to be privately concerned about it. It is suggested it is one of the reasons they appear so keen to have an Australian-led joint banking regulator. That’s because an Australian regulator would also oversee finance companies. The danger for the Government is that, if it tries to impose tougher capital controls, it could push many out of business.
"Warning mum and dad voters about investing in them would be even more damaging. The best option is for mum and dad to check very carefully. Then they should cross their toes and hope the elephant doesn’t squash them."
Nothing came of the column. I didn't receive a single email or phone call or anything from anyone in any position of authority. I got a grumpy letter from a property developer telling me he was sick of my negative approach.
As is the New Zealand way, everyone looked at their toes and refused to be critical of each other. Or they sued anyone who was critical.
I spent a good chunk of 2005 and 2006 fending off legal threats from lawyers behind finance companies such as Blue Chip, Bridgecorp and Hanover. We got a lot of stuff out there but not nearly enough.
I am currently dealing with a legal threat from a Property Syndicator backed by a big Auckland law firm after I wrote a critical column.
It's much easier to say nothing and let the little guys take the pain. It's much easier and cheaper to try to shut down criticism or public debate.
I'm a tad cynical now. And tired.
But here's Kerry McDonald saying after the fact that more should have been done and more people should have spoken up.
The government should have considered appointing statutory managers, and regulators should have looked at charging companies at an early stage.
"The lack of response [from government] was very damaging and a lot of people lost a lot of money," he said. "And a lot could not afford to lose that money."
All of the government's agencies fell down, including the Reserve Bank, Securities Commission, Commerce Commission and Companies Office, but ministers had oversight of them all, Mr McDonald said. "There was a lack of engagement. No one was taking effective action at the time," he said.
And the powers-that-be wring their hands about why Mums and Dads don't trust our capital markets or securities laws...
2. Lo and behold - The Timaru Herald reports that Allan Hubbard told his supporters in Timaru last night he is determined to get back in the game and start shuffling his his investors' assets and money again.
Mr Hubbard spoke last night at a launch for his biography, Allan Hubbard: A Man Out of Time, by Virginia Green. He gave a feisty speech, promising to return to business.
"I'm in advanced talks to take over Hubbard Managed Funds by the end of the year," he said.
He would then work to take back control of Aorangi Securities, his other investment company which is also in statutory management.
3. 'Schemes of the rich and greedy' - Here University of Missouri Economics Professor Michael Hudson tees off here about the Irish bailout and the Icelandic collapse, along with what's happening in America.
The 30-year campaign of the wealthy to rig our economic system – especially the tax component – for their own benefit will accelerate with the GOP capture of the House of Representatives and the likely capture of the presidency and Senate in two years.
For a foreshadowing of what is to come, a dress rehearsal has been conducted in Latvia, Iceland, Ireland and other financially strapped countries. Latvia has been burdened with the world’s most regressive tax system, while Iceland and Ireland have become record setters in tapping taxpayers to bail out financial crime syndicates, a.k.a. banks.
The Irish bailout will encumber its people with perhaps as much debt as a $9 trillion bailout would be here in the United States. The Irish also are expected to also gut unemployment insurance, their minimum wage and similar social safety nets while boosting interest rates and home property taxes to pay tribute to the European creditor agencies that have “rescued” them. They will relinquish ownership of much of Ireland to their creditors, capped by ownership of government policy-making. The new banks will be owned by foreigners, who will put Ireland on a debt treadmill to transfer its taxable surplus to mainland Europe and Britain.
Just as the U.S. taxpayer saved Goldman Sachs and the other high rollers from taking a loss, the Irish are being forced to “socialize” (that is, oligarchize) the losses of the banks.
Think of how the Federal Reserve gave the banks 100 cents on the dollar for the some $2 trillion of toxic assets they took off the books of the banks and you get a sense of how the Irish bailout money will be used. It will keep the banks and creditors whole.
5. 'There wouldn't be anything left' - The Guardian reports Capital Economics has estimated a Spanish bailout would empty the 750 billion euro fund set up for European bailouts. A little factoid of interest. Spains construction industry made up 25% of the economy before the bubble burst.
Amid growing fears that pressure on Portugal will be followed by financial trouble for its Iberian neighbour, Capital Economics said the cost of a rescue providing the equivalent funding security offered to Greece and Ireland would be a ''whopping €420 billion ($A578.84 billion)''. Jennifer McKeown, Capital's senior European economist, said there was €660 billion available from the EU and the IMF, of which Ireland was due to get €80-90 billion.
''If we knock off the similar amount that might be required to meet Portugal's needs, we are left with just €490 billion. That suggests that Spain's needs could barely be met by current arrangements.''
Ms McKeown said the risk of a Spanish bailout was still fairly low, even though the country's borrowing costs rose yesterday to their highest level since the creation of the single currency more than a decade ago. But should Spain require help, the cost would be ''devastatingly high''.
6. Stopping work - CNN reports three million Portugese staged the first general strike in 22 years on Wednesday. This came after the opposition accused the government of hiding a big deficit in a Greek-like manner. No wonder the European bond markets are selling off. An angry mood is building.
Voters are beginning to understand that taxpayers in Europe are being sacrificed to save the banks and the bankers.
Portugal says it will cut its budget deficit to 7.3 percent of its gross domestic product by the end of 2010 by trimming public salaries by 5 percent, raising value-added taxes from 21 to 23 percent, and reducing pension benefits and other government spending. But with unemployment at 10.9 percent, the country's two largest unions argue that the ruling Socialists' austerity measures will only make things worse.
"We have got 200,000 people in a population of around 10 million who are in soup kitchens," said Aquino Noronha, a flight steward who joined Wednesday's walkout. "This cannot go on. What we feel, those of us who are on strike, is it's only the workers who have to pay for this."
7. 'Income inequality is the real problem' University of Chicago economist Raghuram Rajan talks in a Money Magazine interview about how income inequality helped trigger the US housing boom because politicians pushed for poorer voters to get access to cheap credit to become home owners. He speaks a lot of sense. Did the same thing happen here?
In the 1980s we saw a widening of income inequality. Typically the political reaction to that is to redistribute wealth. But in the '80s and '90s there was a sense that we'd had too much redistribution, too much welfare. So you had to find something else, and housing fit the bill for both political parties. The Democrats thought it was wonderful to support home ownership for the poor, their natural constituents.
The Republicans figured property owners would eventually vote Republican. Congress, of course, can't make loans. But Fannie Mae and Freddie Mac both enjoy this tremendous government subsidy, and politicians used that as a lever.
So you had a massive amount of money flow into housing. Homebuyers were told there was no risk of loss -- that ever since the Depression we've never had an across-the-board housing price fall. They were also told homes are a great way to build equity, and you can borrow against that equity.
The brilliance of the home-equity loan, which was a substantial feeder of consumption growth, was that people could borrow without guilt because the rise in home values offset that additional borrowing. What people didn't realize was that some of this asset value was illusory.
8. It's Belgium next - The Telegraph reports financial markets are targeting Belgium as the next domino in the European financial contagion. HT Kokila via email.
Like Ireland, struggling to fend off criticism of its austerity package, there are signs that international bond investors are starting to view Belgium as living on borrowed money and borrowed time. To make matters worse, it has a broken political system and is without a government since April.
International money market traders today pushed the cost of insuring Belgium's debts to record levels. The interest payments still fall short of those charged for Spain's government the Portuguese, but analysts said the gap was narrowing quickly.
9. Totally Kung Fu kick video - I mentioned Eric Cantona's backing for a European bank revolt on December 7 in comment on an earlier Top 10. The idea is that everyone pulls their money out of the bank on one day and brings the corrupt system down. Here The Telegraph have picked up on it.
"What is the system?" Cantona reflected in a video interview with French newspaper Presse Ocean. "It revolves around the banks, the system is built on the power of the banks, so it can be destroyed through the banks."
"The three million people in the street, they go to the bank, withdraw their money, and the banks collapse ... That's a real threat, there's a real revolution," he said in the video that has gone viral on the web.
And here's the video. The grizzled old Kung fu kicker 's in full philosophical 'Seagulls' mode.
10. Totally hilarious video - Some clever clogs in Ireland has done a version of The Downfall video with reference to Ireland's financial debacle. There's a quite a few in jokes, but it still captures the mood. And the best of all, it's a different Downfall clip. It's the courtroom scene and the Hindenberg scene , not the bunker scene. HT Andrew J in yesterday's Top 10.
My favourite line is: "Supporting Anglo Irish Bank is like putting an anchor from the Titanic around the neck of a budgie and hoping it will swim."
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