Making it up as he goes along

Written By: - Date published: 7:10 am, July 25th, 2012 - 48 comments
Categories: privatisation - Tags:

In the cartoon Calvin and Hobbes, they play a game called Calvinball. “The only consistent rule states that Calvinball may never be played with the same rules twice”. It’s a bit like that trying to call this government to account. One day they have legal authority to give away shares, next they don’t. One day they don’t know the cost, then they do, then they don’t again. Like Calvin, I’m getting the impression that Key is just making it up as he goes along.

I particularly liked this nonsense from Key yesterday:

David Shearer: Did he announce the loyalty scheme to the National Party conference without being aware of the cost?

Rt Hon JOHN KEY: I announced the intention to have a loyalty scheme. I do not know the exact cost at this point, but what I do know is that there may be no cost.

What’s Key’s logic for saying there may be no cost? Well, apparently investors will be so overjoyed at the prospect of receiving a free ‘bonus’ share after three years that they will bump up the price they are willing to pay for their shares by more than the value of the free share.

It’s utter bullshit and Key, as a moneytrader, knows it. The option to get a free share in three years time has value but it is not the face value of that share – it has to be discounted for the fact that its three years in the future (at about 8% per year) and it has to be discounted for the fact that requires the shareholder to keep ownership of the shares, denying them the opportunity to do other things with that money if the choice comes along.

Besides, the price mum and dad will have to pay for shares isn’t going to be determined by anything as fancy as the discounted, risk-adjusted cost of a share option – it’s going to be the price that National reckons it can charge to a) not undershoot its revenue targets too much, b) not look like it’s giving these things away, c) get enough ‘mum and dad’ investors that it can label the float a success, and d) not get so many ‘mums and dads’ that it ends up paying out a fortune in covering their brokerage fees at about $40 a pop.

——————————————————————————

Danyl at Dimpost (who came up with the Calvinball comparison) adds:

Before the election Key insisted that the energy companies and Air New Zealand would be sold to ‘Kiwi mums and dads’, and said:

. . . given New Zealanders have $300 billion worth of investments, they will buy and keep the shares.

“We could say one hundred percent of shares to New Zealanders, obviously we could say less, but we are targeting that eighty five to ninety percent and I’m confident we’ll reach it,” Key said.

Here’s Key today on the possible cost of the loyalty scheme:

“If you think about the entire float that could be in the order of $5 billion to $7 billion. Let’s argue that it’s $5 billion for a moment if you then turned around and said about 20 per cent of that could be for mum and dad, it could be more it could be less – but just for the purposes of maths that’s a billion.

Key also adds:

These numbers that the Labour Party are coming up with and the Greens are farcical.

 

——————————————————————————

A guest poster, Twippy, adds what many Kiwis must be thinking every time Key grumpily snaps out insults at people who oppose asset sales:

John Key’s is losing his composure on the government’s widely abhorred asset sales policy, and he is now effectively insulting the vast majority of New Zealanders who oppose it.
John Key called Clayton Cosgrove an ‘idiot’ for articulating the overwhelming public opposition against asset sales. As such, if you agree with Clayton Cosgrove that selling our country’s assets makes zero economic sense, then your prime minister quite likely thinks you are an idiot.
A better definition of idiocy might be selling well-performing strategic national assets that provide dividends that are several times the cost of borrowing.
Of selling your children’s future for the benefit of the wealthy and the few.
Of letting the private sector pillage New Zealand’s strategic assets and raise power prices.
Of giving up the requirement our state owned enterprises have towards social and environmental responsibility, and openign up the taxpayer to lawsuits from overseas shareholders if those responsibilities are exercised at the cost of their profits.
Of hurtling towards selling a national asset without even a basic understanding of indigenous water rights.
Of forcing New Zealanders to subsidise the rich through a loyalty bonus that you admit isn’t even going to work.
Key’s claims that the looters bonus on NZ asset sales shares is an admission that it won’t work.
If only $60m of extra shares are granted, then that means only $600m, 10%, of the shares sold are in ‘mom and pop’ investors’ hands after 3 years.
The thing about the loyalty bonus is that for it to work, it has to cost a lot of money. Otherwise it wouldn’t be much of an incentive. If it isn’t costing us money, that means isn’t being used. And if the incentive isn’t being used that means it’s too late – that Moms and Pops have already sold their assets offshore.
The loyalty bonus is a terrible idea whichever way Key plays it – if it only costs $50m then that’s because Kiwis have largely ignored it and chosen to sell their shares overseas or not bought in in the first place, and if it costs $500m, that means ordinary Kiwis, people who are struggling to make ends meet let alone buy shares, are subsidising those who are wealthy enough to buy shares themselves.
The problem with the looters bonus is that if it’s not a massive expense then it is, by definition, a failure.
Key is forgetting that we are all shareholders in these assets. We benefit from the dividends every year to pay for our education, our health, our law and order, our welfare. Now this source of wellbeing is not only being sold, but you and I are being asked to pay for the privilege of being stripped of something that belongs to all of us. This isn’t an opportunity. It’s a burglary, and we’re being asked to pay the burglar for his services.
This isn’t about providing shares to Kiwis; it’s taking these shares away- and with it their dividends .
But who are we to oppose it. We’re just idiots, after all.

48 comments on “Making it up as he goes along ”

  • Comments are now closed

  1. darkhorse 1
    25 July 2012 at 7:53 am

    Labour and the Greens only need to say that they will not honour the “bonus” scheme if they are in power to stuff this latest stupid idea from our leader.

    Has anyone thought of the deeper reasons for the asset sales  – the asset sales are merely a symptoms of a far worse waste of our resources and our future.

    http://howdaft.blogspot.co.nz/2012/07/kiwisaver-conned-confirmed.html 

    • Armchair Critic 1.1
      25 July 2012 at 8:17 am

      but, but, but, darkhorse, surely all the mums and dads (or is it everyday New Zealanders) that buy the shares would have to vote National, in that case, to ensure they get the shares? And since everyone can afford the minimum parcel of $1,000, National are pretty much guaranteed 75%+ of the vote, because that’s how widely the shares will be taken up?

      • darkhorse 1.1.1
        25 July 2012 at 6:34 pm

        Maybe a really courageous Labour Party could promise as an alternative to put the old Electricorp back together and manage the country’s electricity supply as a single network providing power to the people.

        And it could put the old lines companies back together in some form of regional community trust and the savings would be immense and far outweigh the value of Our Foolish Leader’s bribe.

        Plus maybe Labour could link that to a wider energy strategy that used our total energy resource wisely and for the benefit of the whole economy.

        I know that flying pigs come into this vision but I live in hope. 

        • Georgecom 1.1.1.1
          25 July 2012 at 10:50 pm

          The next Labour-Greens govt has a couple more options that are worth exploring.

          1. They consider running the electricity corp on a non-profit basis. Costs are covered but no dividend is returned to the Govt. The Govt would lose out on money however the cost of power will increase at the rate of meeting costs, not a cost plus dividend basis.

          A variant of this might be to demand a dividend but then return that to all electricity users the following years as a % rebate of their power usage. The ‘fiscal disciplines’ of a deividend are maintained year on year however it is also rebated to power users.

          2. The Govt could look at locking up a certain % of the annual dividend given to the state as funding for local bodies. Lets say 10% of the dividend from electricity Corp is distributed evenly and on an annual basis to local body councils. There is a powerful incentive to keep the assets in state control as part of the dividend flows back to councils to pay for their operations. Rate payers wallets and Councils funding are linked to retention of the assets in state control.

    • ghostwhowalksnz 1.2
      25 July 2012 at 10:22 am

      Doesnt work that way, once its a listed company the directors control the allocation of new shares.

      • Lanthanide 1.2.1
        25 July 2012 at 10:24 am

        This isn’t an allocation of new shares.

        There are 1.4b existing shares in MRP, and they intend to sell at most 49% of them. More likely they’ll sell about 40%, and then will have to give away a further 1-2% as free bonus shares.

    • Lanthanide 1.3
      25 July 2012 at 10:23 am

      Someone else made the point that the bonus shares will be in the prospectus, which makes it a contract, and if the a future government welches on it they could be sued.

      I didn’t get any answer as to why it must be in the prospectus, though.

      • felix 1.3.1
        25 July 2012 at 11:11 am

        Parliament is sovereign. It can legislate that any particular contract or other can be broken if that’s what it wants to do.

        Whether that’s a good way to make legislation is another question, but the same could be argued about legislation to sell this or that energy company.

    • Draco T Bastard 1.4
      25 July 2012 at 11:49 am

      The asset sales are symptoms of failing capitalism and declining profits. To “fix” this the capitalists are reaching for the necessities that they know they can get an unearned income from.

      BTW, your link is 404

      • Draco T Bastard 1.4.1
        25 July 2012 at 1:05 pm

        Actually, that link being 404 is weird as I can get to it from your site but I can’t get it from that link.

        hmmm… seems it’s got an extra character in it.

  2. Craig Glen Eden 2
    25 July 2012 at 8:03 am

    Key talks bullshit constantly but the Journos dont take him to task. A good example is he keeps saying that floating these shares allows for investment in these companies which will allow them to grow, but he knows its the Government that gets this money and they are going to spend it on ???Schools and other badly needed infrastructure.

    • Tom Gould 2.1
      25 July 2012 at 8:20 am

      The media has let the people down badly over the asset sales. Only a fool would swap an asset returning 18 percent for debt costing 5 percent. And the media swallow it. Only a fool would tax people to give away free shares. And the media swallow it. That’s what I call farcical.

      • glg 2.1.1
        25 July 2012 at 8:35 am

        The media are complicit and should be ashamed of themselves. How much in the pay of the NAts are they, they cannot be so stupid as to believe them, so they must be corrupt.

        • Fortran 2.1.1.1
          25 July 2012 at 1:55 pm

          At least you do not have to consult a Registered Financial Planner – just read the Herald – they know the answers.
          Should save me planner fees when I buy.

    • Draco T Bastard 2.2
      25 July 2012 at 11:54 am

      Key talks bullshit constantly but the Journos dont take him to task.

      That’s because they’re too uneducated and unthinking to be able to do so.

  3. Tracey 3
    25 July 2012 at 8:20 am

    I too have found it fascinating that a man who admits he doesn’t know what it will cost (lie number one) can definitively say that other people’s figures are wrong (ie number 2). His reduction of mums and dads to 20% could account for why he thinks the loyalty scheme will “only” cost $60m as opposed to $300m which is probably based on his original lie of the 80% uptake by mum’s and dads.

    • Tom Gould 3.1
      25 July 2012 at 8:32 am

      Isn’t the Finance and Expenditure committee that came up with the $360m cost chaired and dominated by his own people? So are they all fools and idiots too?

  4. marsman 4
    25 July 2012 at 8:51 am

    One way or another we must do our utmost to SABOTAGE Key’s Asset Sales Scam.

  5. Tom 5
    25 July 2012 at 8:51 am

    Key is probably following the advice of his media team which knows that the news cycle is very short
    (news editors having a notoriously short span of attention), a policy Margaret Thatcher called “feeding the chooks”.

  6. Tracey 6
    25 July 2012 at 9:00 am

    What are the implications for both the share floats and the future of the Greens and Labour IF they came out today and announced they will nationalise any company sold by this government and will pay back mums and dads the amount they spent (not adjusted) when they next get into government (whenever that might be) unless a binding referendum is held?

    • Tom 6.1
      25 July 2012 at 9:42 am

      Tracey: re-election ?

      • Tracey 6.1.1
        25 July 2012 at 10:06 am

        Tom – but which party?

        • Tom Gould 6.1.1.1
          25 July 2012 at 12:07 pm

          Tracey, or maybe put the referendum first, once elected they could ask the people to decide if they want to spend $5b of their money on buying back the assets that Key and Joyce have sold? At least that would be a genuine mandate, one way or the other.

  7. tsmithfield 7
    25 July 2012 at 10:15 am

    “it has to be discounted for the fact that its three years in the future (at about 8% per year) and it has to be discounted for the fact that requires the shareholder to keep ownership of the shares, denying them the opportunity to do other things with that money if the choice comes along.”

    That is true. Shareholders will make those assessments when valuing the shares. But from the governments (the sellers) point of view, the present value of any extra money paid for the bonus shares also needs to be factored in (the extra money for bonus shares is received now, but the bonus shares are not issued for 3 years).

    The other point is that if NZers are willing to pay more for the shares due to the prospect of bonus shares in the future, then overseas investors will be forced to pay the increased price if they want a slice of the action, even though they don’t qualify for the bonus shares. So, this will result in either overseas investors paying more, more NZ investors participating, or a combination of both. Either way, it has to be a good thing.

    • marsman 7.1
      25 July 2012 at 10:38 am

      tsmithfield. ‘Either way, it has to be a good thing’ But over-all it is a total SCAM. Everyone knows the sale of these State Assets will leave us worse off so there is nothing good about any of it.

    • DH 7.2
      25 July 2012 at 11:56 am

      “But from the governments (the sellers) point of view, the present value of any extra money paid for the bonus shares also needs to be factored in (the extra money for bonus shares is received now, but the bonus shares are not issued for 3 years). ”

      The point about bonus ‘loyalty’ shares is that there is no extra money paid for them so your argument looks a little silly.

      NZers won’t be willing to pay more because the shares will be offered at a fixed price, it’s hardly a bonus if the loyalty shares are more expensive than the other shares is it.

      The likely result is the bonus will be for the bigger share traders. Some 20% of shares will be tied up as non-tradeable. That supply-side shortage will push up the price of traded shares until the bonus shares are issued. More shares will come on the market after that & reduce the demand which will depress the share price for a time.

  8. felix 8
    25 July 2012 at 11:06 am

    Of course with Key’s history of broken promises – even promises to his hardcore fanclub – there’s a bloody good chance that there’ll never be any bonus shares.

    (A hypothesis supported by the observations that they haven’t been legislated for, haven’t been budgeted for, and no one in govt has any idea how they’ll work or what they’ll cost)

    • lostinsuburbia 8.1
      25 July 2012 at 1:25 pm

      Well when being PM is a hobby and you can bugger off to Hawaii why bother thinking anything through properly.

  9. fabregas4 9
    25 July 2012 at 11:18 am

    I hate the idea of asset sales but what is one to do? I think the only hedge against the inevitable rise in power prices is to buy these shares which in the case of Mighty River Power will certainly be both a bargain and very profitable.

    • ghostwhowalksnz 9.1
      25 July 2012 at 1:22 pm

      Dividends are only paid out of profits AFTER they keep a big portion for reinvestment. Its a capital intensive business and there is a lot of money spent on ‘buying’ new customers door to door . Imagine the incentives for big power users

  10. Draco T Bastard 10
    25 July 2012 at 11:44 am

    It’s a burglary, and we’re being asked to pay the burglar for his services.

    That’s it in a nutshell. Now just need the opposition parties to realise that and say that they will renationalise without compensation. They won’t though – they’re too damn chickenshit.

  11. prism 11
    25 July 2012 at 12:34 pm

    John Key called Clayton Cosgrove an ‘idiot’ in Twippy comment.

    I think he was commenting on Cosgrove’s use of the term ponzi scheme. Key knows exactly what that is, and knows that partial privatising isn’t it. So haha Cosgrove you’re ignorant Key says. But strangely enough Key keeps reassuring us that having 51% will give our government all the decision making options, when he must know that will not be the case and a small percentage holder can gain surprising power. Nothing is simple in business – Key is smirking inside when he offers certainties and reassurances. What a con artist, and he’s done NZ like a dinner.

  12. captain hook 12
    25 July 2012 at 2:16 pm

    this a government of manques and upstarts who think that because they WON then they can do what they like.
    They have no idea of process and the rule of law because they think that they ARE the law.
    throw them out.

  13. powershift 13
    25 July 2012 at 3:11 pm

    Hydro power prices rise. Cost of solar is decreasing. Shift to solar by income stretched (and sensible) for heating, hotwater etc and make income from feedback to grid. Shares not really such a good deal I think in view of future trends with climate change, water disputes with farming etc climate change and general uncertainty. Trend towards self sufficiency I think!

  14. Sanctuary 14
    25 July 2012 at 6:41 pm

    Damn right wing neo-lib bastards want to start a class war.

    • Draco T Bastard 14.1
      25 July 2012 at 7:53 pm

      Start it? It’s been going on for at least 5000 years. The upper class is, ATM, winning.

  15. Karl Sinclair 15
    25 July 2012 at 10:07 pm

    Although the below link is a document on the true cost of public private partnerships, this also highlights the problems with Asset Sales in NZ…… + charter schools etc etc etc…..

    Revolution Anyone?

    http://www.policyalternatives.ca/sites/default/files/uploads/publications/Popular_Primers/bottom_line_p3.pdf

    INTERNATIONAL TRADE AGREEMENT
    VULNERABILITY: P3s open the door to
    serious trade consequences under NAFTA
    and other trade deals, risking complex
    lawsuits and massive fines for the Canadian
    public.

    LOWER CORPORATE TAXES: Corporations get tax breaks
    on public assets they own; individual taxpayers are
    forced to make up for the lost tax revenue.

    MONEY LEAVES THE COMMUNITY: And sometimes the
    country. Profits often head overseas, while local
    suppliers lose contracts. Lower wages
    and lost jobs mean less money spent in
    local communities.

    PROFITS BEFORE SERVICE AND SAFETY:
    Profit is a strong incentive to cut costs –
    even when service or safety are compromised.
    When a problem arises, the
    company often blames the politicians.

    PRIORITIES ARE CHANGED: Decision-making on where
    to build schools, bridges or hospitals may become
    focused on profit potential, rather than public need.

    NO ESCAPE CLAUSE: Communities can find themselves
    stuck with unacceptable arrangements for decades.

  16. Karl Sinclair 16
    25 July 2012 at 10:35 pm

    Privatization Myths Debunked (article from: In the Public Interest

    http://www.inthepublicinterest.org/node/457

    Myth #1: Privatization saves money.

    The Truth: Privatization often raises costs for the public and governments.

    Proponents of privatization promise to fix budget woes by saving the government money. But numerous examples in a variety of sectors show that projected savings don’t always materialize. Cost overruns combined with hidden and indirect costs, such as contract monitoring and administration, can make privatization more expensive than in-house services for governments. In fact, the Government Finance Officers Association estimates that hidden and indirect costs can add up to 25% to the contract price.[i]

    The Government Accountability Office has found that methods by which agencies and privatization consultants conduct projections and report contract costs can make cost savings appear greater than they actually are.[ii] According to a 2007 survey by the International City/County Management Association, 52% of governments that brought services back in-house reported that the primary reason was insufficient cost savings.[iii]
    An audit report from the Wisconsin Legislative Audit Bureau revealed that the state’s department of transportation wasted more than $1 million by outsourcing almost half its engineering work to private contractors over the past five years. The audit found that about 60% of these outsourced jobs could have been done at a lower cost by state workers, which would have saved the state $1.2 million.[iv]
    In February 2009, Chicago and Chicago Parking Meters LLC signed a 75-year concession agreement for the operation of Chicago’s 36,000 parking meters. Along with many problems related to malfunctioning meters, rates have significantly increased, causing many residents to think twice before parking in the city. Many stores and merchants in the area complain that the rates have decreased business. In some parts of the city, rates increased in the first months to 28 quarters ($7) for 2 hours of parking time. The parking charges also have been extended to 7 days a week and for more hours during the day.[v]

    Myth #2: Private companies do a better job than the public sector.

    The Truth: Many examples show declines in service quality under private contractors.

    Faith in the private sector to outperform government agencies is deeply ingrained in the American psyche. However, the facts disproving that belief are steadily mounting. In many cases, private contractors have failed to deliver, leaving communities without vital services and assets. Private companies naturally seek to maximize profits, which can incentivize cutting corners to reduce costs. This can greatly impair service quality and maintenance of vital assets. The most popular reason for in-sourcing, according to the International City/County Management Association survey mentioned above, was a decline in service quality. Over 60% of governments that brought functions back in-house reported this as their primary motivation.[vi]
    In 2009, Indiana cancelled its $1.34 billion contract with IBM to provide public benefit eligibility services. For two years, vulnerable families failed to receive benefits for which they qualified, including food stamps, health coverage, and cash assistance, due to the company’s poor provision of these services. The privatized system led to high error rates and poor timeliness, among many other problems.[vii]
    In 2010, Gary, Indiana cancelled its 10 year contract with United Water. In May 2008, a state inspection found that the district, under United Water’s management, had violated discharge limits 84 times between 2005 to 2007; had at least 25 pieces of broken equipment; filed inadequate monitoring reports; and failed to meet mandated deadlines.[viii] By cancelling the contract and bringing water service back in-house, the city expects costs to decrease from $16 million to $8 million a year.

    Myth #3: Privatization allows governmental entities to better anticipate and control budgetary costs.

    The Truth: Cost estimates are extremely unreliable and privatization can cause result in unforeseen budgetary consequences.

    Some believe that privatization allows for more precise budgeting, since the inflow or outflow of money appears fixed once a contract with a private entity is signed. But hidden costs and cost overruns can significantly distort these figures, market circumstances can reverse the estimates, and ripple effects of privatization can increase unexpected areas of governmental budgets.

    Governments cannot anticipate the cost of privatization failures, from the overtime expenses of sending city work crews to correct sloppy work by private road maintenance companies to the massive ordeal of rebuilding entire outsourced departments when a contractor’s costs, delays or service breakdowns become unsustainable.
    In 2009, the Pew Center on the States analyzed Pennsylvania’s failed attempt to sell the Pennsylvania Turnpike. The Governor predicted that the lease income would generate about $1 billion a year for the state’s transportation budget. But this rosy figure assumed a 12% annual return on the state’s investment. According to the Pew report, with the stock market decline the previous year, the state would have actually lost money on its investment.[ix]
    Sometimes perceived cost savings in one area can increase the cost in another area of the budget. According to the Economic Policy Institute, in 2006, nearly 20% of all federal contract workers earned less than the federal poverty level of $9.91 an hour, while 40% earned less than a living wage. Many of these workers do not receive employer-sponsored health benefits[x]. As a result, these workers must rely on public benefit programs, such as Medicaid and the Earned Income Tax Credit (EITC) program to make ends meet. Lower wages and benefits, while making contracts appear cost-efficient, lead to increases in other parts of the federal and state budgets.

    Myth #4: Privatization allows governmental entities more administrative flexibility.

    The Truth: Privatization requires substantial administrative resources for monitoring and oversight.

    Substantial time and personnel are necessary to adequately monitor contracts, especially those involving essential governmental functions. If governments don’t dedicate sufficient personnel and time to monitoring contracts, they run a high risk of poor contractor performance and wasting large amounts of money.
    In a Cincinnati Enquirer investigation, the newspaper concluded that the State of Ohio and many local governments engaged in “casually administered” contracts with “lax controls.” From 2000-2003, 116 state audits found that contactors misspent $97.7 million tax dollars.[xi]
    Texas entered into a contract with Convergys to administer human resources functions for the Health and Human Services Commission. An audit in 2006 revealed numerous problems related to contract oversight. As a result of the minimal oversight, the state was unable to be fully involved in the development, testing, and validation of contractor’s system. The agency relied on the contractor to both develop and perform the testing and then to assess the system and report the results of those tests.[xii] As a result, the agency did not have the working knowledge of the system to hold the contractor accountable for technical performance issues.

    Myth #5: The public still maintains control over a privatized asset or service and the government retains the ultimate ability to make related public policy decisions.

    The Truth: Privatization can bind the hands of policymakers for years, allowing private companies significant control of a privatized asset or service and the ability to dictate important policy decisions.

    Non-compete and “make-whole” clauses are just a few of the ways that private companies control privatized assets and dictate important public policy decisions. Non-compete clauses forbid competition and prohibit the government from making policy and planning decisions that may affect the contractor’s revenues. These contract terms have prevented numerous cities and states from improving public transportation or implementing other planning or environmental initiatives that may have threatened contractor revenues. Asset privatization contracts also frequently stipulate that the government must reimburse or “make whole” the contractor if an event, such as a parade or sudden natural disaster, occurs. Often the true ramifications of these types of provisions, which help reduce risk and guarantee profits for contractors, come as a surprise to policymakers.
    In September 2008, Indiana was required to reimburse the private Indiana Toll Road operator $447,000 for tolls that were waived for people being evacuated during a severe flood. This requirement in the contract forced the state to pay money to a private contractor in order to ensure the public’s safety.[xiii]
    In 2008, the private contractors that operated the Northwest Parkway in Denver, Colorado, objected to improvements on W. 160th Avenue. The 99-year privatization contract allowed the private company to prevent improvements on city-owned and maintained roads, since the improvements “might hurt the parkway financially,” by providing an alternative route for travelers, thus potentially reducing toll revenue.[xiv]

    Myth #6: If anything goes wrong, the government can easily fire the contractor or adjust the contract.

    The Truth: Reversing privatization involves huge costs and service interruptions.

    When governments turn over core services to private contractors, it can be very expensive and time-consuming to alter contract terms or cancel a contract. Taxpayers can be stuck with legal expenses when companies file lawsuits seeking greater payment. Additionally, contract cancellation can lead to service interruptions or loss of access to public assets during the transition period.
    Virginia sought to end its contract with Northrop Grumman for statewide information technology services because of numerous instances of missed deadlines, cost overruns, and technical problems. The state’s auditors calculated that cancelling the contract during fiscal 2010 would cost Virginia $400 million, which auditors said the state can’t afford.[xv] As of 2010, the state may be forced to remain in the contractual relationship because it cannot afford the cancellation.
    In 2007, when Texas cancelled its contract with Accenture for public benefits eligibility services, it took 20 months for both parties to settle issues related to the contract cancellation. In the meantime, many families continued to have problems accessing food stamps, welfare, and health insurance because the state had fired a large portion of its case workers at the beginning of the privatization effort. Nearly three years later, Texas is still struggling to rebuild its public workforce.[xvi]

    Myth #7: Companies are chosen for privatization contracts on the merits, not based on political or financial connections.

    The Truth: Government for profit opens doors to unscrupulous behavior by politicians and businesses.

    As many examples illustrate, the companies that receive lucrative contracts may not be the best company for the job, but instead may have the most insider connections.
    Two judges in Pennsylvania received $2.6 million over seven years from Pennsylvania Child Care LLC, a private company that operated a juvenile detention center. The judges helped secure the company a 20-year, $58 million contract with the county and aggressively sentenced children for minor infractions to ensure that the detention center remained at capacity. In early 2009, the two judges were charged with racketeering, extortion, bribery, money laundering, and fraud, among other crimes.[xvii]
    In 2009, the former president of the Jefferson County, Alabama county commission was convicted of taking bribes to steer government business to J.P. Morgan. The county commissioners followed advice of a J.P. Morgan consultant and set up an unorthodox financing scheme to refinance the debt on its sewer system. The county paid $120 million in fees — six times the prevailing rate – to buy interest-rate swaps from J.P. Morgan and several other financial institutions. Within five years, the bad advice had increased the county’s debt by $277 million. Low-income residents bore the consequences as the county raised sewer rates again and again to stave off bankruptcy.[xviii]

    • xtasy 16.1
      25 July 2012 at 11:39 pm

      Simple answer – whatever you write:

      This far too complicated for the average mind and brain of a NZer.

      It is too complicated and too complex, whether it may have some meaning or not, in part or in whole.

      So hardly anybody, yes I bet, nobody, will read it, take it serious and simply continue to get out of bed every morning to head to her or his master, fulfil the days work, do anything against her or his conscience, as that is supposed to be expected of a “servant” or worker, and suck the rest in faked facial pride.

      The mass in NZ is totally divided, illiterate about true information, indifferent, as pre-occupied with survival, distracted by stupid social and other media, sex, drugs and alcohol, and desperately clinging onto some vague hope that one day things may get better, so they can also be able to be “rich”, afford their own home and have a great life, at some vague time and place in the future.

      The true global picture is totally out of favour for that to happen and for those daydreamers to get what they want. The technical revolution and new media is tying people into narcissitic relationships and self delusion, so many, or rather most have lost the ability to communicate and relate, and too many are afraid to even talk to their neighbours or work mates.

      I see this even at “protests”, where people gather, but are too afraid to openly talk to each other in normal, natural ways. Too many stand and wait for “the happening’ and to be “guided” or “motivated”. And lack of trust is everywhere. So they run around also taking photos or videos of each other, as a desperate effort to find affirmation that they are in the right place, with the right people at the right kind of event. In reality, there is little or NO cohesion. Social activism is DEAD.

      People have lost ability to interact, relate and be social.

      That is also the reason for protests and actions fading away. And the perpetrators, the manipulators that run the show, they want it that way!

      John Key and this government love this happening, it gives them all the easy means to go ahead and divide this country more, sell assets, enslave more into low wage jobs and cater for the interests of themselves and their lobbyist supporters.

      Think about all this for a moment, and you may learn something.

      The challenge is huge, and people need to wake up, otherwise NZ and the world will be lost for good.

      • darkhorse 16.1.1
        26 July 2012 at 7:40 am

        You are right xtasy but not just Our Current Foolish Leader has been guilty of this Helen was as bad.  Possibly worse becasue she was so much more intelligent and focussed.

        Helen was a Statist – John a Corporatist – the family and community are seen as the enemy to control by the state/corporation.  That is why we have local government and school amalgamations and the slow destruction of the other mechanisms and focii of community by the state.  It is just a continuation of the highland clearance and the destruction of tribalism.  Community is economically inefficient – or it appears to be so and it is inherently anti-statist/anti-corporatist because it is communalist (NOT communist!).  
        yet community is the primary unit/driver of society and the economy- the resulting anomie – the lack of belonging is behind much of the negative stuff in society. 

  17. xtasy 17
    26 July 2012 at 3:38 am

    Interesting stuff and enlightenment, Evo Morales, etc. see for yourselfes, Socialism is the ONLY solution:

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