Bully Banks

Written By: - Date published: 9:32 pm, February 12th, 2013 - 25 comments
Categories: loan sharks - Tags:

Good for Damien O’Connor. He’s calling for an enquiry into possible mis-selling of interest rate swaps to farmers. Good on Fairfax’s Rob Stock too, who has written extensively about this issue in the Sunday Star-Times.

In Britain, it’s a huge story; their Financial Services Authority has said that more than 90% of these interest rate derivatives could have been mis-sold. Compensation is going to be paid; the only question is whether it will be in the millions or billions. The Telegraph has a dedicated section covering the story, and a website “Bully Banks” has been set up to campaign for redress.

Here in New Zealand our banks are requiring farmers who have been caught by the fine print with higher interest rates and break fees to sign confidentiality agreements if they are to get any relief at all. Damien O’Connor is right to call for a select Committee enquiry – someone needs to looks under this rock.

Here the Commerce Commission is still deciding whether to investigate.

25 comments on “Bully Banks”

  1. MrSmith 1

    Ha! the commerce commission that was paying it’s way under Clark but now is nothing but a cowling gimp. I wouldn’t hold my breath Mike.

  2. Afewknowthetruth 2

    Since bankers own the world, including all western governments, they can do whatever they like, knowing they will NEVER be held to account. Okay, there might be a slap over the wrist with a wet bus ticket, but nothing more than that. EVER.

  3. Tim 3

    Don’t you just love the new buzzword of “mis-selling” that’s now being applied to fraudulent activity?
    The shysters accidently misrepresented services and products so they could make a fast buck.

    • McFlock 3.2

      Oh, I’m sorry. Did I commit fraud? I’m so dreadfully embarrassed at being caught…

    • emergency mike 3.3

      Yeah love the ‘mis-selling’ –

      Oh did we sell those rehypothecated non-existent assets that we knew were bullsh*t but told people they were a good deal? Now that you’ve found out about it, i guess we shouldn’t have done that. It’s not that we are lying fraudsters, it’s just that, what with all the hurly-burly involved in using our massive amounts of money to make even more money while contributing nothing to society, sometimes we mis-sell things in order to make even more money. Usually no one notices, and the people who we f*cked over just become losers, and we make more money. But I guess this time we will have too cough up a little money to make people shut up about our mis-selling. Oh dear it seems I’ve just mis-bought a big pile of cocaine and misplaced it up my nose.

      • Tim 3.3.1

        Apparently Prosser “mis-spoke” too in Winnie’s world at least.
        We should call bullshit every time we see this sort of crap!

  4. Good on you Mr Damien O’Connor, this is very relevant to the major issues that are going on globally and require addressing and will raise public awareness. This is GREAT news. Good one Labour!

  5. BLiP 5

    .

    Oooh, look . . . the bankers’ drones are coming in for your Fonterra shares. Suprise, surprise.

  6. Colonial Viper 6

    O’Connor is on to it. It would also be very worthwhile to widen the scope of the inquiry to include local councils.

    • saarbo 6.1

      It may have turned bad for the farmers but for a period they were paying 5% for long term debt while the rest of the market paid 9% to 11%, I dont want to defend banks but these farmers had some upside from these deals also. Personally I would like to see Labour doing something for the rights of farm workers.

  7. saarbo 7

    My understanding is that these instruments were only sold to farmers with debt in the vicinity of $5m plus. So very wealthy farmers only.

    I think there is an issue here but Labour should make sure that they keep or shift their focus on to the right place…and that is farm workers, who are getting a raw deal by some very wealthy/large farmers.

    The wealth gap in farming is now huge, workers now have virtually a zero chance of purchasing a farm as established farmers purchase up to 8 to 10 farms. There are a number of issues here, but the workers are treated terribly, when bad farm owners cant get NZ workers they look for foreign workers. There are a number of farm workers who would look to shift to labour if it could develop some good policies in this area.

  8. Pascal's bookie 8

    yay. Good on Damien.

    This thing has the potential to low up with enough force to mean the crown will be needed to bail someone out. Getting light on it as early as possible, is a great idea.

    If it doesn’t blow up, all to the good. But if the government refuses to have a look at what is going on now, and it does blow up, then god help them, because no one else will.

  9. DH 9

    I agree there needs to be a full inquiry on it. There really is no pressing commercial or financial justification for farmers to buy into interest rates swaps and I’m pretty sure that an inquiry will find they were coerced into them…. sign up or you don’t get your loan or the interest rate on your loan will be higher etc etc.

    As with all frauds they need to follow the money. Both parties to a swap can’t lose so they need to look into who exactly are the other parties who are profiting from farmers losses. (who wants to bet it’s the banks)

    I think Damien O’Connor would do us all a big favour if he explained in plain English how these things worked too, I’m good at this stuff and I’m still struggling to grasp it properly.

    • Colonial Viper 9.1

      The libor scandal affected hundreds of billions in investments like interest rate swaps.

      http://en.wikipedia.org/wiki/Interest_rate_swap

      http://www.pimco.com/EN/Education/Pages/InterestRateswapsBasics1-08.aspx

      • DH 9.1.1

        Yeah I’ve read a few of the explanations but they don’t really explain it very well or show how it is the borrower is the one who always seems to end up losing on the deal. As I said, the nature of swaps is that both parties can’t both lose at the same time so who actually is making all the money?

        Floating interest rates have fallen a lot over the last few years and by my reckoning anyone with a fixed interest stake in a swap should be gaining, which leads me to think these farmers all had floating interest rate loans and are paying an over the top rate on the fixed interest of a swap. But if they wanted fixed interest why buy swaps when they could have fixed their interest in the first place? Doesn’t make a lot of sense to me.

        • Colonial Viper 9.1.1.1

          Yeah I’ve read a few of the explanations but they don’t really explain it very well or show how it is the borrower is the one who always seems to end up losing on the deal. As I said, the nature of swaps is that both parties can’t both lose at the same time so who actually is making all the money?

          Typically in these situations the bank has successfully offloaded bad derivatives investments (the interest rates swaps) off their own books and on to the books of their overly-trusting clients.

          The same idea as a bad stockbroker who finds out that their brokerage holds a portfolio of loser stocks of failing companies which are going to crash, but convinces their ‘valued clients’ that the stocks are worth investing in, so unloads the problem to their clients, making themselves money in the process. In other words, the stock broker (or bank) unethically positions themselves on the good end of the trade, and their client (victim) on the losing end of the trade.

          This is not unlike banks who put out press releases saying “oh shit! Mortgage interest rates are going to rise so all you homeowners better lock in todays low rates with some fixed terms!”

          And then a year later when you look back, mortgage rates have actually fallen, you are stuck paying more, and the bank is very happy thank you.

          • DH 9.1.1.1.1

            None of that really explains it though ( not for me anyway). On the face of it a swap is a contract between two retail borrowers. Farmer A has a fixed interest loan and wants a floating loan. Farmer B has a floating interest loan & wants fixed interest. So they do a swap.

            Now if the swap got out of balance then one farmer would gain & the other would lose. The point here is that it’s only the borrowers who gain or lose. Not the banks. Whoever managed the contract gets a cut but that’s just a margin-based fee and not the difference between fixed & floating.

            The Libor business doesn’t really explain where the banks made on the deal because the gains still should have gone to the other party to the swap contract. (well that’s how I see it this far)

            • cheforsure 9.1.1.1.1.1

              Your understanding is basically corrcet – the banks make a margin, which is often collected as a fee. It should be remebered that at the time, common consenses was that high interest rates were the new normal.

              Odd for farmers to get into this though, unless they are really big. Swaps make sense when each party has a competitive advantage in either fixed or floating loans.

              • DH

                That still doesn’t explain how the banks made on the Libor business. From what I can gather the Libor was only used to set the floating rate on the swap contract and didn’t affect the management fee that banks made on the contract. The only party to gain from manipulating the Libor would be one side of the swap, and if the swaps were just between two retail borrowers why would the banks break the law to benefit someone else?

                It seems more like the swaps looked to be rigged from the beginning, ie;

                1/ Banks force borrower to take out a loan with an interest type they knew would be on the losing side of a swap.

                2/ Banks coerce borrower to take out a swap contract

                3/ Banks take the other side of the swap contract without revealing their interest.

                4/ Banks make a killing by manipulating the Libor to advantage their side of the swap.

                That would make more sense to me but I’ve never seen it explained how it all worked in reality so I’m still a bit in the dark

                • cheforsure

                  LIBOR is the rate at which British banks will loan each other money. The LIBOR rate is only available for certain ‘credit worthy’ (big) banks. The Libor scandal was about a bank artificially reducing LIBOR to make that bank’s risk profile look better than it was. It would have also made speculating on derivatives easier too as you would have certainty on interest rates over everyone else.

                  How this links to swaps, is that Libor is usually used as the underlying interest rate benchmark that banks use.

                  I was incorrect when I said the margin is only a fee. After looking again, many charge there margin as an interest rate e.g 0.25%.

                  Swaps are fine and responsible tool for big companies for risk management purposes. Again, weird for anyone else to use them really, but a lot people assumed you get a free lunch pre GFC.

                • Colonial Viper

                  DH:

                  http://www.businessinsider.com/how-barclays-made-money-on-libor-manipulation-2012-7

                  Bets involving Eurodollar futures—which allow traders to take bets on how interest rates will move over certain time periods—caused Barclay’s submitters to alter the lending rates they reported to the BBA that would make up LIBOR. Eurodollar futures (and the derivatives related to them) accounts for some $360 trillion in global trade, and typical contracts involve at least $1 million.

                  It’s no surprise, then, that Barclays stood to gain a lot of money off of even small changes in the LIBOR rate—generally just a few basis points.

  10. Draco T Bastard 10

    There’s really only one solution for this – all loans caught up in the fraud need to be declared null and void.

    • Tim 10.1

      +1 After all they were “mis-sold”. It was all an accident apparently so nullifying and voiding seems a reasonable solution.
      Costs of course awarded to the instigator of this accident – the “mis-seller”
      Stand Down!
      Thankyou Kimu Savvy

  11. Rogue Trooper 11

    just what we need- more financial compensation

Recent Comments

Recent Posts

  • Typhoid report shows health officials under the hammer
    A chaotic picture has emerged around the response of Auckland public health officials to this year’s typhoid outbreak, says Aupito William Sio Labour’s Pacific Island Affairs spokesman.  “Our Pacific community was left exposed by the Auckland Regional Public Health Services’ ...
    23 hours ago
  • Huge high country station risks going to overseas ownership
    The real estate advertisement is spot on in describing Mt White Station as an “iconic” South Island high country station. The 40,000 hectare property is adjacent to Arthur’s Pass National Park and the upper reaches of the Waimakariri River. Mt ...
    GreensBy Eugenie Sage
    1 day ago
  • Bill English must be upfront about his involvement in Barclay scandal
    Bill English’s explanations that he was on the periphery of the long running employment dispute involving Todd Barclay don’t stack up, says Labour Leader Andrew Little. “The Prime Minister claims to have been a bystander, but we know he was ...
    2 days ago
  • Labour will not resile from royalties
    Labour believes cleaning up our rivers so that they are clean enough to swim in is the most important freshwater issue for this election, but that it is also fair that a royalty should be charged where public water is ...
    3 days ago
  • With friends like Hone, who needs enemies?
    With less than three months until the election, Hone Harawira has delivered another blow to the Māori Party’s flagship policy of Te Ture Whenua Māori reform and the already unstable MANA-Maori Party alliance, says Ikaroa-Rāwhiti MP Meka Whaitiri. “On The ...
    3 days ago
  • Shifty Bill jumps the shark
    Bill English's claim today that it has never been established that Todd Barclay's recordings of his staff took place is bizarre and shows a complete lack of honesty and leadership, says Labour’s Finance spokesperson Grant Robertson.  "Todd Barclay told Bill ...
    4 days ago
  • Te Ture Whenua – gone by lunchtime?
    Māori Development Minister Te Ururoa Flavell has to front up about yesterday’s mysterious withdrawal of Te Ture Whenua Bill from Parliament’s order paper, says Labour’s Ikaroa Rawhiti MP Meka Whaitiri.  “Has he lost his way and has decided to run ...
    5 days ago
  • Bill English ignorance of law beggars belief
    For Bill English to claim he and others in the National Party didn’t realise the law may have been broken in the Todd Barclay taping scandal is simply not credible, says Leader of the Opposition Andrew Little. “The Prime Minister ...
    5 days ago
  • Government ignored advice on Pacific people’s superannuation
    The Government ignored advice from the Ministry of Pacific Peoples that raising the Superannuation age of eligibility would have a ‘disproportionately high impact’ on Pacific people, says Labour’s Pacific Island Affairs spokesperson Aupito William Sio.   “The Ministry for Pacific ...
    5 days ago
  • Bill English misleads Parliament on Police statement
    Bill English's attempt to restore his damaged credibility over the Todd Barclay affair has backfired after his claim to have "reported" Mr Barclay's actions to Police has proven not to be true, says Labour MP for Wellington Central Grant Robertson. ...
    6 days ago
  • Keep it Public
    The Green Party strongly supports the Tertiary Education Unions call to #KeepitPublic Keep what public? Out quality tertiary education system that National is trying to open up to more private for-profit providers with a new law change. The (Tertiary Education ...
    GreensBy Gareth Hughes
    6 days ago
  • This ‘technical error’ is hurting big time
    Jonathan Coleman cannot resort to his ongoing litany that the Ministry of Health’s $38 million budget blunder is an error on paper only, says Labour’s Health spokesperson David Clark. “He might keep saying it’s a ‘technical error’ but the reality ...
    6 days ago
  • Labour to invest in public transport for Greater Christchurch
    Labour will commit $100m in capital investment for public transport in Greater Christchurch, including commuter rail from Rolleston to the CBD, says Leader of the Opposition Andrew Little. “As the rebuild progresses, there are huge opportunities for Greater Christchurch, but ...
    6 days ago
  • Green Party will repeal solar tax
    It’s ridiculous for an electricity distribution monopoly to apply a charge on solar panels but worse than that, it’s harming our effort to tackle climate change. Hawke’s Bay lines company Unison last year announced a new solar charge for their ...
    GreensBy Gareth Hughes
    7 days ago
  • English fails the character test over Barclay
    Bill English is hoping this scandal will go away, but he is still dodging important questions over his role in covering up for Todd Barclay, says Leader of the Opposition Andrew Little. ...
    7 days ago
  • Government must apologise for Christchurch schools stuff-up
    The Ombudsman’s findings that the Ministry of Education botched the reorganisation of Christchurch schools after the 2011 earthquake are damning for an under-fire National Government, says Labour’s Education spokesperson Chris Hipkins. “The Ombudsman has found the reorganisation of schools in ...
    7 days ago
  • Government’s multinational tax measures weak
    The Government’s proposals to crack down on multinational tax avoidance, by its own admission only recovering one third of the missing money, means hardworking Kiwis will bear more of the tax burden, says Labour’s Revenue spokesperson Michael Wood. “The Government ...
    7 days ago
  • World Refugee Day – we can do our bit
    I’m really proud that yesterday, on World Refugee Day, the Greens launched an ambitious plan to increase the refugee quota to 5000 over the next six years. Of those places, 4,000 will be directly resettled by the government and another ...
    GreensBy Denise Roche
    7 days ago
  • PM’s leadership in question over Barclay affair
    The Prime Minister must belatedly show some leadership and compel Todd Barclay to front up to the Police, says Labour Leader Andrew Little. “Twice today Bill English has been found wanting in this matter. ...
    1 week ago
  • Another memory lapse by Coleman?
    The Minister of Health ‘couldn’t recall’ whether the Director General of Health Chai Chuah offered his resignation over the Budget funding fiasco involving the country’s District Health Boards, says Labour’s Health spokesperson David Clark. “In the House today Jonathan Coleman ...
    1 week ago
  • Bill English needs to come clean over Barclay
    Bill English needs to explain why he failed to be upfront with the public over the actions of Clutha-Southland MP Todd Barclay, following revelations that he knew about the secretly recorded conversations in the MP’s electorate office, says Labour Leader ...
    1 week ago
  • Minister, show some backbone and front up and debate
    Rather than accusing critics of his Te Ture Whenua Māori Bill of telling ‘lies’, Māori Development Minister Te Ururoa Flavell should show some backbone and front up to a debate on the issue, says Ikaroa-Rāwhiti MP Meka Whaitiri. “Te ...
    1 week ago
  • Equal pay for mental health workers
    Today, mental health workers are filing an equal pay claim through their unions. Mental health support workers do important and difficult work in our communities. But because the workforce is largely female, they are not paid enough. It’s wrong for ...
    GreensBy Jan Logie
    1 week ago
  • Nats’ HAM-fisted housing crisis denial
    National’s decision to knowingly release a flawed Housing Affordability Measure that underestimates the cost of housing is the latest evidence of their housing crisis denial, says Labour’s Housing spokesperson Phil Twyford. ...
    1 week ago
  • New Pike footage builds compelling case for mine re-entry
    New footage of the Pike River Mine deep inside the operation, revealing no fire damage or signs of an inferno, provides a compelling reason to grant the families of Pike River’s victims their wish to re-enter the drift, says Labour ...
    1 week ago
  • Labour will get tough on slum boarding houses
    The next Labour-led Government will legislate a Warrant of Fitness based on tough minimum standards to clean out slum boarding houses, says Labour’s Housing spokesperson Phil Twyford. “It’s not acceptable for New Zealanders in the 21st Century to be living ...
    1 week ago
  • Green Party tribute to Dame Nganeko Minhinnick
    Haere ngā mate ki tua o paerau; te moenga roa o ngā mātua tupuna. Haere, haere, haere. It was with a huge sense of loss that we learned of the death of Dame Nganeko Minhinnick yesterday. The Green Party acknowledges ...
    GreensBy Catherine Delahunty
    2 weeks ago
  • Urgent answers needed on DHB funding
      Jonathan Coleman must come clean and answer questions about what actual funding DHBs received in Budget 2017, says Labour Health Spokesperson David Clark.   ...
    2 weeks ago
  • Treasury puts Māori Land Service on red alert
    A damning Treasury report raises serious questions about the delivery of Te Ururoa Flavell’s proposed Māori Land Service, giving it a ‘red’ rating which indicates major issues with the project, says Ikaroa-Rāwhiti MP Meka Whaitiri.  “Treasury’s Interim Major Projects Monitoring ...
    2 weeks ago
  • Economy stalling after nine years of National’s complacency
    The second successive quarterly fall in per person growth shows the need for a fresh approach to give all New Zealanders a fair share in prosperity, says Labour’s Finance spokesperson Grant Robertson. ...
    2 weeks ago
  • Kiwi kids deserve much more
    All Kiwi kids deserve so much more than the impoverished picture painted by the shameful rankings provided by the UNICEF Innocenti Report Card, says Labour’s children spokesperson Jacinda Ardern. ...
    2 weeks ago
  • NZ Zone a precursor to a total nuclear weapon ban
    New Zealand’s nuclear-free zone, legislated by Parliament in 1987, is something we all take pride in. It’s important, however, that we don’t let it thwart its own ultimate purpose – a world free of nuclear weapons. That goal must be ...
    GreensBy Kennedy Graham
    2 weeks ago
  • English must confirm we still stand by our principles on UN resolution
    Bill English must tell New Zealand whether we remain in support of the UN Security Council resolution on Israeli settlements in Palestinian territory, says Labour Leader Andrew Little. “After Foreign Affairs Minister Gerry Brownlee’s evasive answers to repeated questions on ...
    2 weeks ago
  • Māori party drop the poi on Māori health
    The Māori Party have dropped the poi when it comes to supporting Ngati Whakaue and Māori interests in Bay of Plenty by allowing an iwi owned and operated service Te Hunga Manaaki to be brushed aside in favour of a ...
    2 weeks ago
  • Labour to invest in Whanganui River infrastructure
    Labour will work in partnership with the Whanganui Council to repair and redevelop the city’s Port precinct in advance of planned economic development and expansion. To enable Whanganui’s plans, Labour will commit $3m in matching funding for repairing the Whanganui ...
    2 weeks ago
  • Parihaka: an apology
    An apology only works for healing if it is sincere and if it is accepted. We teach our children to apologise and to be genuine if they want to be forgiven. On Friday, June 9 at Parihaka, the Crown apologised ...
    GreensBy Catherine Delahunty
    2 weeks ago
  • Survey shows many international students plan to stay in NZ after study
    Most international students in New Zealand at PTEs (private training establishments) who have a plan for themselves after study intend to stay in New Zealand to work. This shows how low-level education has become a backdoor immigration route under National, ...
    2 weeks ago
  • Councils step up as Nats drop the ball on housing crisis
    Phil Goff’s Mayoral Housing Taskforce is another positive example of councils stepping up where National has failed on housing, says Labour Housing spokesperson Phil Twyford. ...
    2 weeks ago
  • Time for a breather on immigration
    Labour will introduce moderate, sensible reforms to immigration to reduce the pressure on our cities, while ensuring we get the skilled workers our country needs, says Leader of the Opposition Andrew Little. “New Zealand is a country built on immigration. ...
    2 weeks ago
  • Inaction puts Māui dolphins at risk
    Conservation Minister Maggie Barry was at the United Nations Oceans Conference in New York last week, trying to convince the world that the New Zealand Government is doing a good job at protecting our marine environment.  Yet last week after ...
    GreensBy Eugenie Sage
    2 weeks ago
  • National unprepared as immigration runs four times faster than forecast
    National has been caught asleep at the wheel by record immigration that has outstripped Budget forecasts, says Leader of the Opposition Andrew Little. ...
    2 weeks ago
  • First home buyers shouldn’t carry the can for National’s failed policies
    The introduction of tighter limits on lending to first home buyers would see them paying the price for the National Party’s failure to recognise or fix the housing crisis, Labour’s Finance spokesperson Grant Robertson says. “Nine years of denial and ...
    3 weeks ago
  • Motel bill blows out as Nats fail to deliver emergency housing
    Minister Amy Adams has admitted at select committee that National has now spent $22m on putting homeless families in motels as it fails to deliver the emergency housing places it promised, says Labour Housing spokesperson Phil Twyford. ...
    3 weeks ago