South Canterbury Finance is on the brink of collapse. The plan appears to be for the government to purchase the bad loans from the company at twice their book value, giving SCF the cash it needs to get back on its feet. That’s a dumb idea. The owners of SCF have taken huge profits in the good times, they can’t be allowed to pass their losses on to the rest of us now and continue as if nothing happened.
If an institution is too big to fail and gets a bailout when it gets in trouble, it means the owners can never lose – they get the profits in the good times and in the bad times the taxpayer absorbs the losses. That’s not the way capitalism is ‘supposed’ to work, but all too often that’s exactly how it works – privatise the gains, socialise the losses as the rich milk the rest of us.
That’s not right. If something is so crucial that the government must ensure it remains a going concern then it should be publicly owned, so that the taxpayer gets the profits along with the losses, rather than stumping up for the bill after the rich men’s party turns sour.
So, my proposal is that, if the government decides it can’t afford the cost in guaranteed deposits and the economic ramifications of SCF toppling over, it buys it lock stock and barrel, not the just the crappy parts. The company still has a lot of value. If the government wants to save SCF, it should incorporate its business it into Kiwibank.
If the government won’t do that, there shouldn’t be any bailout. The money to keep the company afloat should come from the people who have made fortunes out of SCT over the years, not the rest of us.
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Jenny has written a guest post with another angle on this affair:
While National MPs claim there is no money to pay teachers or doctors, the government prepares to hand over, up to half a billion dollars to private investors who bet on a lemon.
The lie is, that this must be done for the good of the economy.
It didn’t make any difference in the US and it won’t make any difference here.
Sinking deeper and deeper into recession, the American example shows that the idea that private sector bailouts are good for the economy is pure unadulterated bull. The only ones to benefit from public bailouts of private investment companies and bad banks, were private investment companies and bad banks, their overpaid managers and fat cat shareholders.
The US government and the country at large were impoverished by multi- billion dollar bailouts of bad banks and investment companies.
While wealthy investors were looked after, tens of thousands of average Americans who had their jobs and homes taken from them, due to the malfeasance of these same finance companies and bad banks – were shown no such largesse.
Why can’t New Zealand learn from what has what happened overseas?
The truth is that saving the economy is not what private sector bail outs are all about.
Taking care of the well off, at the expense of everyone and everything else, including the economy, is what it, is all about.
Yesterday, Liam Dann the Herald’s business editor, described how the National government has deemed Alan Hubbard’s “Bad Bank” as a New Zealand’s version of “too big to fail”.
Put the probe into his personal financial entities to one side. The real story is South Canterbury Finance – the $900 million liability hanging around the taxpayer’s neck…..
Hubbard lost control of that company earlier this year after it had breached its trust deed. He was removed from the board and given the sentimental title of President for Life.
By that point the Government had already effectively decided the company was too big to fail.
The bad loan “bank” is up to its neck in $600 to $700 million of debt on assets that may yield as little as half of that when they are realised.
When it is euphemistically said that South Canterbury failed to “stick to its knitting” it is the bad bank that people are talking about.
For people on suffering the pain of minimum wages barely enough to pay the rent, without the luxury of spare savings to invest in high finance. It’s a bitter irony that wealthy and middle class investors should have their speculative losses made up by a government that viciously opposed raising the minimum wage. What do these people know about hardship?
While the government continues to do nothing about joblessness and low wages, the question is, how many more millions of dollars will they uselessly throw investors way, as the recession deepens and more finance companies go under?