Hard News by Russell Brown

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Hard News: The Bollard Book

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  • Sacha,

    They could have challenged the suppression order

    Did anyone even know who Garrett was in 2005?

    Ak • Since May 2008 • 19719 posts Report Reply

  • Ian Dalziel,

    Rigger mortis...

    Did anyone even know who Garrett was in 2005?

    well he was at least potentially two people!
    but did he know who he was?

    Christchurch • Since Dec 2006 • 7944 posts Report Reply

  • Craig Ranapia,

    And in other news, Cunliffe has drunk the Hubbard Kool-Aid:

    The Chair of the Financial Markets Authority Eastablishment Board, Simon Botherway, now has no choice but to step aside pending the outcome of the Ombudsman’s inquiry into the mangament of his potential conflicts of interest in placing Allan and Jean Hubbard into statutory managment.

    The public cannot understand how the Securities Commission took this step reportedly on the basis of a single anonymous complaint, timed shortly after Mr Hubbard transferred the bulk of his remaing assets into SCF to protect investors.

    FWIW, "the public" Cunliffe links to are these folks -- you decide how representive or credible they are.

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

  • Russell Brown,

    And in other news, Cunliffe has drunk the Hubbard Kool-Aid:

    Wellll ... I don't care about the Hubbard cult. But I'll be interested to see the Ombudsman makes of Botherway's links to the Torchlight Fund, which did very well from the bailout.

    I hope and trust it'll be tickety-boo. But I don't think this stuff is irrelevant.

    Auckland • Since Nov 2006 • 22834 posts Report Reply

  • Craig Ranapia,

    I hope and trust it'll be tickety-boo. But I don't think this stuff is irrelevant.

    Oh, I have great confidence in the judgement of the Ombudsmen's Office. Mr Cunliffe and his party on this issue? Not so much: As we've seen far too many times over the years, it's very easy to make allegations under Parliamentary privilege that don't quite pan out in the cold light of day. And politically, I think Labour may find lining up with the Hubbard cultists is a very bad call indeed.

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

  • Russell Brown,

    As we've seen far too many times over the years, it's very easy to make allegations under Parliamentary privilege that don't quite pan out in the cold light of day

    But the blog post you linked to isn't protected under Parliamentary privilege.

    Auckland • Since Nov 2006 • 22834 posts Report Reply

  • Craig Ranapia,

    But the blog post you linked to isn't protected under Parliamentary privilege.

    No, but we've been promised "more to come" which I suspect will be considerably less judicious, dropped in the House, not blogged and very carefully media-managed.

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

  • Sacha,

    But the blog post you linked to isn't protected under Parliamentary privilege.

    I wondered. Who'd have thought the oily one's recent trial and Garrett's outing would be quite so educational?

    Ak • Since May 2008 • 19719 posts Report Reply

  • Russell Brown,

    Righto. Just back from interviewing Dr Bollard.

    We'll run about 6 min on the show, and put the whole 23-minute interview online.

    He clarified his qualms about "the media" during the crisis -- it was one or two specific individuals whose judgement he fretted over.

    And he signed a copy of The New Zealand Reserve Bank Annual 2010 for David Haywood.

    Afterwards, he admitted he had been slightly worried when he became aware of the book about receiving an anxious call about its contents from some country where they don't do irony ...

    Auckland • Since Nov 2006 • 22834 posts Report Reply

  • Joe Wylie,

    . . . some country where they don't do irony ...

    Bollard really hates Canadians. It says so in the book.

    flat earth • Since Jan 2007 • 4593 posts Report Reply

  • Sylvie Zlami,

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

    I take your point. But I also think it's reasonable to expect that those who are in charge of a nation's monetary policy have the intellectual capacity to do so.

    auckland • Since Dec 2007 • 31 posts Report Reply

  • Russell Brown,

    I take your point. But I also think it's reasonable to expect that those who are in charge of a nation's monetary policy have the intellectual capacity to do so.

    And yet, by any conventional measure, the people in question are extremely bright and hugely knowledgeable.

    Interestingly, Bollard cites a 2007 presentation by a young guy from a US business school as demonstrating to him that the system that had been created was beyond the understand of more than a handful of people in the world.

    Basically, the structure where everyone covered everyone else's risk was thought to be a force for stability. Until it became the opposite.

    Auckland • Since Nov 2006 • 22834 posts Report Reply

  • Rich of Observationz,

    I don't buy that. The concepts are not that hard (obviously they're quite impossible to a politician or journo who scraped through school cert maths only by the efforts of their top decile educators).

    Basically the problem was that the structure was robust against default by individual creditors at the anticipated rate. It wasn't robust against a sustained fall in property prices causing a large proportion of the creditors to default. Nor indeed was the much simpler NZ model of "mates looking after mates".

    The fix is to deal with property price inflation. But that isn't going to happen when the aspirations of key middle class voters is tied up with their getting free money from sitting in a house.

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

  • Kyle Matthews,

    I don't buy that. The concepts are not that hard (obviously they're quite impossible to a politician or journo who scraped through school cert maths only by the efforts of their top decile educators).

    The basic concepts aren't too hard. The implementation as we see it in the global financial markets are very complex. It's not a simple system, it's a very complex system.

    The current financial crisis seems to result in part from that complexity - the bundling of bad debt together and credit rating it was deliberately made complex as that's the only way people couldn't or wouldn't look inside it and see it was bad.

    Since Nov 2006 • 6243 posts Report Reply

  • Russell Brown,

    It wasn't robust against a sustained fall in property prices causing a large proportion of the creditors to default.

    Or against the kind of lending practices that went on the in the US. The intention seemed fine -- to help poor people into home ownership by tapping the savings glut in Asia.

    But Bollard notes in the book that an alarming number of the people shopping those mortgages (I can't find it right now) had criminal records.

    The key intellectual figure in this was Alan Greenspan. So you can fairly blame Ayn Rand ...

    Auckland • Since Nov 2006 • 22834 posts Report Reply

  • Ross Mason,

    Rich of O:

    I agree the concepts "should/could" be figured out at a SC maths level. But that isn't the problem. See this from Mikare Curtis as he so matter- of-factly-put-it-as-if-it-happens-all-the-time-without-anyone-batting-an-eylid:

    * 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.

    It's so simple it is scary. The "simple" issue here is the way that a bank can securitise and then use the money for new loans. To me that is the BIGGIE.

    Because now there are (at least) two lots of people/institutions with fingers in the lline for the same piece of real estate (if property is the deal) or "money". That to me is the "mistake" in the whole freaking business. That is where hell can break out. As he points out, it is "safe" as long as the "better" loans are securitised. And a mere human makes that choice. Scary as.

    Upper Hutt • Since Jun 2007 • 1590 posts Report Reply

  • Rich of Observationz,

    If you lend someone money to buy a property they can't afford and rely on inflation to fix it, then you're headed into trouble however simple the process. Look at Hubbard.

    Those people didn't earn enough to afford the houses they bought at the prices they were sold for. The financial fix for this didn't work - what's actually needed is a system that lets ordinary people have a decent house with secure tenure.

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

  • Sylvie Zlami,

    And yet, by any conventional measure, the people in question are extremely bright and hugely knowledgeable.

    I’m sure they are very bright, but I suggest they haven’t been prudent in their assessment of the situation. Looks like the default was to run with the crowd, rather than asking inconvenient questions.

    I think the system Bollard was referring to was the derivatives system which is so complex that a few people actually understand it. Such claims aren't new, however, credible IMO.
    (It makes my brain explode when I read the bumf that most people actually understand)

    Taking that at face value (and considering the sheer sums involved in derivative transactions), should we not be concerned that the people who are responsible for the financial system of entire nations, don’t fully understand the nature of those key financial mechanisms?

    If regulators don't have the balls to ask questions, does it not raise the question of who exactly is running the show??

    auckland • Since Dec 2007 • 31 posts Report Reply

  • Sacha,

    Surely excessive leveraging played a significant role in the collapse? There's something fundamentally broken with any system that encourages trading and derivative activity that is hundreds of times the value of any underlying asset. As if the sizzle is so much more important than the steak. And our current PM was one of the bbq geniuses who talked up the aroma and designed more attractive tins to sell it in.

    Ak • Since May 2008 • 19719 posts Report Reply

  • LegBreak,

    Another bit of currency trivia.

    When all the coins got changed 5 or so years ago, what percentage of coins in circulation got handed/ cashed in?

    Wellington • Since Nov 2006 • 1162 posts Report Reply

  • Ross Mason,

    From Sylvie's link:

    The author Thomas Pynchon warned: "If they can get you to ask the wrong questions then the answers don't matter."

    Re Bollards story: Touche.

    The global derivative market as of June 2009 totaled $605 trillion (source: Bank of International Settlements [BIS]). This is a large increase from less than $10 trillion 20 years ago.

    Now that is an immense (Warning: that was an understatement) number "we" are allowing to be gambled. Utter speculation.

    We are still inventing these freaking things. Carbon trading is one. Dairy products. NZSX Futures market i think is in the pipeline.

    Upper Hutt • Since Jun 2007 • 1590 posts Report Reply

  • Ross Mason,

    Heh:

    The competitive advantage, if any, enjoyed by investors and corporations in speculative trading, especially in complex derivatives, is unclear. Perhaps it is a lack of "horse sense" which, as stated by Raymond Nash, is "what keeps horses from betting on what people will do."

    Upper Hutt • Since Jun 2007 • 1590 posts Report Reply

  • Kyle Matthews,

    Those people didn't earn enough to afford the houses they bought at the prices they were sold for. The financial fix for this didn't work - what's actually needed is a system that lets ordinary people have a decent house with secure tenure.

    Well you need to look elsewhere than the current financial system, which still has largely the same regulations in many countries as it did four years ago.

    Making money by any means necessary and getting out before it all falls over seems to be the purpose of the system.

    Since Nov 2006 • 6243 posts Report Reply

  • Stephen Judd,

    It's not just about junk loans though, is it. It's about how the junk is rated. I'm a pension fund, my charter says I can only invest in AAA securities, this security is rated AAA, where's the problem?

    It seems that in the US, at least, mortage issuers lied to agencies or exerted pressure on them, and in turn, ratings agencies were happy to take the business and be less diligent than you or I would expect them to be. And of course there's the interesting question of whether ratings agency models are even accurate when given good honest data...

    Wellington • Since Nov 2006 • 3122 posts Report Reply

  • B Jones,

    A bank run -- if it were to happen -- becomes self-perpetuating. You want to get your money out while there's still some in the vault to get.

    >>Didn't this happen to/at Countrywide Bank at one point?

    Also in Mary Poppins. Young Michael Banks wants to use his shiny coin to feed the birds (tuppence a bag) rather than make his first deposit in his father's bank, and the fuss he causes when they won't give him his money prompts all the other customers to demand their money out, and they have to close the doors.

    Ah, the Roaring 20s.

    Wellington • Since Nov 2006 • 976 posts Report Reply

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