Hard News by Russell Brown

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Hard News: The Bollard Book

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  • Russell Brown,

    How? It's perilously close to a civics man-splain to observe that the Governor of the Reserve Bank's powers do not include vetoing legislation or beating the Finance Minister over the head until he come back to the paths of fiscal righteousness.

    Quite. And the book makes clear the pressures on them to come up with such a scheme, including Kevin Rudd's call to Helen Clark: "O hai, Helen, we're about to comprehensively guarantee bank deposits, like, this afternoon. Just sayin'. Bai."

    Cullen didn't want the price of entry to be beyond the reach of the credit unions and building societies, and he had a point. They could have cut out the finance companies, but that would almost certainly have triggered a bloodbath. They were being pressured by the Australians not to load the costs of the scheme onto the Australian-owned banks. They knew it would be gamed, but I think it was a least-worst-option scenario.

    And basically, we came out of this a lot better than many other countries. You look at what the British government had to do with Northern Rock et al and you count your blessings.

    Auckland • Since Nov 2006 • 22830 posts Report Reply

  • Craig Ranapia,

    You look at what the British government had to do with Northern Rock et al and you count your blessings.

    Or the shit the Obama Administration is catching from the very people who handed it the mother of all burning bags of dog shit in the first place -- and don't feel obliged to offer any remotely reality-based alternative.

    Cullen didn't want the price of entry to be beyond the reach of the credit unions and building societies, and he had a point. They could have cut out the finance companies, but that would almost certainly have triggered a bloodbath.

    Anyone else suspect Cullen has been discreetly head-desking every time Cunliffe has opened his mouth on the subject?

    North Shore, Auckland • Since Nov 2006 • 12370 posts Report Reply

  • steve black,

    Oh, I think they knew a lot. It's striking how much they relied on others having imperfect knowledge to keep the situation stable.

    Which is why three dudes got a Nobel prize in Economics for their work in looking at how asymmetric information explains some of the workings of the "market".

    Asymmetric infomation: it cuts both ways...public good, private greed...these are just hard words.

    sunny mt albert • Since Jan 2007 • 116 posts Report Reply

  • Rich of Observationz,

    Originally, the finance companies were expected to move to bank levels of reserves. This has never happened. If they'd been given a month or so to do this and then been wound up, we'd have lost less money than by allowing them to keep lending.

    Also, I feel a system that relies on the suppression of knowledge to function isn't an especially good one.

    Back in Wellington • Since Nov 2006 • 5550 posts Report Reply

  • Andre,

    Most of our funds were tied up in banks. The finance companies weren't going under because of runs being made on them - in most cases it was either shonky practices or bad lending decisions coming home to roost. They could have included credit unions and building societies . They have different structures than finance companies.

    It was just power protecting wealth at the expense of tax payers.

    New Zealand • Since May 2009 • 365 posts Report Reply

  • Ross Mason,

    You won't see mortgage holders queue up to pay off their loan in full because the bank is in trouble (even though I suppose a bank could ask for its money back early - read the fine print in your mortgage and personal/business loan documents).

    I have to ask my stupid question. What would they be getting back if they called in your mortgage? Real money? A piece of paper saying what exactly? A promisory note of what?

    Or does this happen: They only need to pull back 2 or 3 mortgages and they can "pay back" what they were originally given to play with. ......So whose do they pick?

    Helping precipitate a full blown run on our banks and the attendant misery by reporting early signs of it is not the kind of scoop I want on my CV.

    Then WTF do these guys write about that I SHOULD believe?

    Upper Hutt • Since Jun 2007 • 1590 posts Report Reply

  • Russell Brown,

    Or the shit the Obama Administration is catching from the very people who handed it the mother of all burning bags of dog shit in the first place -- and don't feel obliged to offer any remotely reality-based alternative.

    That comes through very clearly in the book. Geithner and other top officials -- who are routinely assailed from both ends of the political spectrum -- did a good job in an appalling situation, in Bollard's view. He also regards the stimulus bill as a vital step (sorry, Tea Partiers, but you actually don't know shit) and frets over the politics of the US Congress.

    There's another interesting irony: Labour's pump-priming in its last two years in office meant that we already had stimulus spending underway, which seems to have helped a lot.

    It also meant that Bill English was then expected to be the grinch in his first budget, because we'd had our lollies already. It's fascinating how tightly-circumscribed a lot of these political decisions were.

    Auckland • Since Nov 2006 • 22830 posts Report Reply

  • Russell Brown,

    The finance compaies weren't going under because of runs being made on them - in most cases it was either shonky practices or bad lending decisions coming home to roost.

    But if they'd been the only ones left out of a deposit guarantee scheme? Much, much worse than anything we actually saw.

    Auckland • Since Nov 2006 • 22830 posts Report Reply

  • Adam Bennett,

    I'll ask him about this tomorrow

    I look forward to it.

    As an aside, amongst things I didn't report at the time were a well known businessman's not entirely light hearted comment at the height of the crisis along the lines of ``at least New Zealand has plenty of fresh water and capacity to produce food''. Or the (probably apocryphal) anecdote about how quickly civil order broke down in Albania after the cash machines stopped working due to their localised financial crisis in the late nineties.

    Since Sep 2010 • 3 posts Report Reply

  • Robyn Gallagher,

    Today Dr Bollard kindly obliged my request for a photo with the other Alan Bollard book. I feel like a fangirl.

    Raglan • Since Nov 2006 • 1946 posts Report Reply

  • Kyle Matthews,

    From memory, that was about the 1984 currency crisis, when some journalists agreed not to report what they knew, for the public good. I don't have a problem with that.

    I don't think I do either.

    But given that the normal role of the media is to take information that the public would like to know and put it before the public, and in this instance journalists have clearly chosen not to... who knew anyway? Did anyone or any group of people benefit by having time to get their money out of things before the general public became aware? What were the implications for people of journalists not reporting what they know?

    Since Nov 2006 • 6243 posts Report Reply

  • Sacha,

    Today Dr Bollard kindly obliged my request for a photo with the other Alan Bollard book.

    Awesome - straight to the pool room with that one

    Ak • Since May 2008 • 19707 posts Report Reply

  • Rich of Observationz,

    Adam, could we guess at what you're not reporting now?

    What Rodney Hide "did in his youth and now regrets"? National's plan to appoint Banks as a commissioner if he loses the super-mayor election? The real reason for the CERRA law?

    One can but speculate....

    Back in Wellington • Since Nov 2006 • 5550 posts Report Reply

  • dyan campbell,

    Today Dr Bollard kindly obliged my request for a photo with the other Alan Bollard book. I feel like a fangirl.

    Oh my god Robyn, I want that to be me! That is a very cool photo.

    I liked what David Haywood wrote about the launch of the book, that someone from the treasury pulled him aside and said "Alan Bollard wants a word with you..."

    auckland • Since Dec 2006 • 595 posts Report Reply

  • Russell Brown,

    What Rodney Hide "did in his youth and now regrets"? National's plan to appoint Banks as a commissioner if he loses the super-mayor election? The real reason for the CERRA law?

    One can but speculate....

    And fairly wildly.

    I don't think any of those fall into the good-of-the-nation circumstances attached to a potential run on the banks or the currency. They'd all be stories the Herald would love to own.

    Auckland • Since Nov 2006 • 22830 posts Report Reply

  • SteveH,

    I have to ask my stupid question. What would they be getting back if they called in your mortgage? Real money? A piece of paper saying what exactly? A promisory note of what?

    If you cannot repay the loan then they will take the property - it's no different than a foreclosure due to failure to make the loan payments. If you had reasonable equity in the property you would probably try to refinance with another lender. It's not an option a bank will undertake lightly, as who is going to take out a mortgage in the future with a bank that is known to have foreclosed in this way?

    So whose do they pick?

    At a guess I'd say they'd go for the marginal cases first - the loans they probably shouldn't have made in the first place.

    Since Sep 2009 • 444 posts Report Reply

  • Kyle Matthews,

    So whose do they pick?

    I'd be surprised to see a bank trying to use that when the bank got in trouble. For one thing it wouldn't work - because it would start a run on the bank if one already hadn't happened, and savings and internationals loans would be pulled out faster than the bank could recover mortgage lending.

    I'd imagine the clause is in there for when the bank knows something about you and wants to get in as fast as possible to recoup. Like you're going under and they know that a month from now every other creditor is going to have gotten their hands in - worth trying to get in first and calling in the mortgage so you might get the title of the property and come out OK.

    Since Nov 2006 • 6243 posts Report Reply

  • Mikaere Curtis,

    Or does this happen: They only need to pull back 2 or 3 mortgages and they can "pay back" what they were originally given to play with. ......So whose do they pick?

    This sounds like a very short term liquidity problem, one that could be handled by taking out a loan/issuing bonds etc. Assuming they don't want to do that, my guess is they would quickly securitise* their best available loans, and get the money that way.

    * Simply put, securitisation is when you sell the predicted interest stream on a group of loans. The bank gets cash up front (which they can on-lend in new loans), and the buyer gets a higher rate of return that they could make on a term deposit. Abuse of this process caused the financial meltdown in the first place, but our banks tend to be quite conservative, securitising the better loans and not creating junk loans in the first place.

    Tamaki Makaurau • Since Nov 2006 • 528 posts Report Reply

  • Rich of Observationz,

    I'm unconvinced that some in the media weren't aware of Garrett's offense. He would have made several court appearances.

    They could have challenged the suppression order (as has happened in various cases with notable non-political defendants). I've seen no sign of this.

    Back in Wellington • Since Nov 2006 • 5550 posts Report Reply

  • Ian Dalziel,

    Christchurch • Since Dec 2006 • 7943 posts Report Reply

  • Russell Brown,

    They could have challenged the suppression order (as has happened in various cases with notable non-political defendants). I've seen no sign of this.

    Fair call.

    Auckland • Since Nov 2006 • 22830 posts Report Reply

  • Jim Cathcart,

    Bernard Hickey had been posting links regarding the fragility of the Australasian banking system well before GFC I. The most notable was from analyst Christopher Wood of CLSA in Hong Kong. Wood suggested that the "Big Four's" loan book is still overweight in mortgage lending and that a collapse in NZ residential property could be the trigger to send the banks into crisis mode. Regardless of the crisis, the banks are still reliant on a steady stream of first home buyers taking on truckloads of debt.

    Since Nov 2006 • 228 posts Report Reply

  • Sylvie Zlami,

    Although he does, remarkably, credit unnamed expert blogs with helping him understand the crisis as it began to unfold.

    Well, if that ain't telling (and more than a little alarming) I don't know what is.
    Long before the crisis unfolded, its inevitability was discussed in great detail in (alternative) financial/economic media where the fundamentals were laid bare.
    Was it conveniently ignored because it wasn't on the official song sheet? Or was it just too damn difficult to understand? Or perhaps it was too bloody scary to admit that the global financial system had long ago become a casino ruled by gambling lunatics.

    I'd really like to know why this crisis came as such a surprise to the likes of Mr Bollard & Co. You'd think they should have seen it coming like Xmas. Plenty of individuals in the blogsphere did.

    Makes you wonder what - if anything - has changed since then.

    auckland • Since Dec 2007 • 31 posts Report Reply

  • Raymond A Francis,

    You'd think they should have seen it coming like Xmas. Plenty of individuals in the blogsphere did

    That sounds ok untill you realise that the blogshere (and this just the blogs I have read this morning ) claims that the english are returning to the true faith and everything in the bible can be taken literally except it does need to be interpreted by priests etc
    There is also the continuing meme that the sky is going to fall

    My point being it is hard to sift the wheat from the dross

    And my economocs lecturer suggested the whole collapse 40 years ago it just took longer than he expected

    45' South • Since Nov 2006 • 577 posts Report Reply

  • Paul Campbell,

    The run on currency lasted about a month before dropping back to normal levels. What is strange, however, is that it has not returned into the system subsequently.

    note to prospective burglars - always check the mattress

    Dunedin • Since Nov 2006 • 2622 posts Report Reply

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