Christchurch earthquake & moral hazard

Written By: Marty G - Date published: 12:00 am, September 9th, 2010 - 99 comments
Categories: Economy - Tags: christchurch earthquake, fran o'sullivan, moral hazard

Fran O’Sullivan joins us in asking why the Government was so quick to completely bailout the South Canterbury Finance investors and is being so miserly with earthquake victims:

“Just imagine the uproar if the sequence had been reversed [if the earthquake came before the SCF].

Consider: Key goes down to the earthquake zone. Tells Cantabrians the Government will get behind them. But it will not be able to stand fully behind those who don’t have earthquake insurance. As he told TVNZ’s Q&A programme on Sunday: “It’s the 5 or 10 per cent of people that don’t have insurance that have said, ‘Look, I’ll risk it’ … and that’s the moral hazard for the Government because, on the one hand, if we pay everybody out, why would people take insurance. On the other hand, you’re gonna have people with real hardship and deprivation, and it’s getting that balancing act right. It’s not going to be easy.”

His Government has since indicated it will come to the party with a range of social services. But nobody is pretending a bailout is on the way for those who failed to take out insurance.

Consider again: if having already made crystal clear his Government’s view that it was too concerned about moral hazard risks, and the signal that would be sent if the Crown restored the losses of uninsured earthquake victims, Key then turned around a day or so later and said the Government was prepared to overlook moral hazard concerns when it came to South Canterbury’s bond investors and creditors and fully pay them out so it could get full control of the situation.

I suspect the uproar of hatred that has been pouring out against South Canterbury founder Allan Hubbard on far too many uncontrolled websites over the past week would have instead been directed against a Government arguably looking after well-heeled opportunists to whom it did not owe a red cent as they were not covered by the guarantee scheme.

As Maier said on Tuesday last week: “A lot of bets in the casino paid off big time today.”
What we have ended up with is very untidy: the Government has paid out “in the know” bond investors and foreign preferential shareholders who did not qualify for the guarantee.

Forget about moral hazard – the smart money now knows that the Key Government can be “gamed”.

I want to make a point about this moral hazard argument that the government is so concerned about with the earthquake, which it wasn’t concerned about with SCF.

The moral hazard argument is that if the government cover someone’s losses now, it will encourage them to take uninsured risks in the future in the expectation of a government bailout if things go wrong, imposing even more costs on the government in the future and unhinging capitalism by allowing return without risk. Both the SCF bailout and covering the costs of uninsured homeowners and workers could create a moral hazard.

But, in the case of the earthquake victims at least, there’s the social justice argument that you can’t allow families, especially children, to suffer because of the poverty or mistakes of the parents or their parents’ employers. Do people deserve to have their lives ruined because they couldn’t afford insurance? We have a moral duty to help.

It seems to me that there’s a simple solution: help people now, prevent people taking uninsured risks in the future.

How does it work?

Damage insurance: Government extends EQC coverage to all homes and contents affected by this quake, regardless of whether the people had home insurance or not (side question: if you’re a renter, your landlord presumably has the house insurance so gets EQC cover but do you get EQC cover for your contents?)

In future, EQC is funded not out of a levy on home insurance policies but by a levy on residential rates. Every property owner pays rates, so there’s no moral hazard problem of people not bothering to get home insurance – instead, everyone is covered and everyone pays. Bear in mind that you can’t get earthquake coverage from private insurers in Christchurch any more but there are still major earthquakes occurring.

Wages: Government covers the wages of all employers who can’t work due to the quake on top of any private insurance that businesses have. No-one is left out of pocket.

To avoid moral hazard, in the future wage insurance for disasters will be covered by a compulsory public insurance scheme like ACC, funded by a tiny payroll levy. And I do mean tiny – a $100 million pool expected to be paid out once a decade could be funded with a levy of just 1 cent per hundred dollars of wages. Again, everyone gets covered now and there’s no moral hazard for the future because a compulsory and universal insurance scheme has been introduced.

The government can help the people who need help now while avoiding creating an undesirable moral hazard for the future. The question is: will it choose to?

PS. Since my piece the other day, respected business journo Patrick Smellie has written an article dismissing the suggestion that the earthquake could be an economic boon, and Treasury has put damage at $4 billion and the initial output loss at 0.5% of GDP.

99 comments on “Christchurch earthquake & moral hazard ”

Comments are now closed

Loota 1

9 September 2010 at 12:15 am

One thing which aggravates me no end is how the NATs are willing to come up with in depth schemes, mechanisms and rationale over months and months in order to transfer a shit tonne of money over to their mates and random speculators vis a vis South Canterbury Finance.

But can’t be assed trying to think through how they can help ordinary NZ’ers. Instead its “Not insured? You should’ve known better. Next.”
- Marty G 1.1
  
  9 September 2010 at 12:19 am
  
  Paul Henry saying that uninsured people failed to take ‘personal responsibility’ so stuff them is a prime example of what you’re talking about.
  
  The ability to double think is amazing – i’ve seen him encourage an unemployed executive to go on the dole and 20 seconds later call a sickness beneficiary a bludger.
Jenny 2

9 September 2010 at 1:17 am

My question is, what about those who couldn’t afford mortgages and have had to rent, but have lost their homes?

If the rental property that housed their family has been damaged and is now uninhabitable, and as a result, they and their family are in a shelter. What assistance is being being given to them?

Is the Minister of Housing going to break his silence on this issue?

Is Housing New Zealand going to get the budget to increase their housing stock to meet the need for more rental accomodation?
- Rex Widerstrom 2.1
  
  9 September 2010 at 3:24 pm
  
  Very good questions, to which I would add one more: What, if anything, will be done to stop landlords who own an intact house profiteering as demand hugely exceeds supply by racking rents? And as a corollary, will a sitting tenant facing eviction on a flimsy pretence so the owner can flip the house and bring in new tenants at a much higher rent have any sort protection (other than the long, drawn-out and unpredictable Tenancy Tribunal process)?
  - Jenny 2.1.1
    
    9 September 2010 at 7:25 pm
    
    Your right Rex to stop the speculators the obvious thing to do, is for Housing New Zealand to buy up the necessary number of suitable and undamaged empty homes from the private sector to add to their rental stock and rehouse all the homeless families.
    
    Sure this would cost, but it would only be a tiny fraction of the money made available to bail out SCF investors. Even Fran O’Sullivan realises who is the more deserving.
    
    captcha – “bought”
    - Herodotus 2.1.1.1
      
      9 September 2010 at 7:45 pm
      
      How long do you think that will take, great idea.
      There will be months years depending upon the lenght of after shocks.
      There will be extensive geotech work being undertaken so as not to build on suspect land or to ascertain what geotech requirements are needed to protect the land, also I would imagine that the fault will have to be tracked & mapped.
      Roads that had minor hairline cracks on Monday now due to aftershocks have 1m fracture lines. One reason why it is taking so long to review the damage. So in some cases raoding and other infrastructure initially passde has subsequently required 2nd or 3rd visits to find out that it requires remedial or replacement.
      Making land available, it does not magically appear from a tree. There is extensive town planning infrastructre planning e.g. stormwater, wastewater efects on traffic movements etc. If we fast track then there is a great potential for poor planning and a disaster. this sad event has allowed us the potential to redesign a major city and with wisdom and knowledge to improve on what was there.
      We currently have one major disaster partically caused by haste, poorly designed law and companded by poor decision making. Do we really want to be the authors or 2 really basd decisions within a year?
      - Jenny 2.1.1.1.1
        
        9 September 2010 at 9:36 pm
        
        .
        Herodotus it would only take a matter of days for HNZ to buy up the necessary number of undamaged vacant rental properties.
        
        My point. There should not be one family homeless while there is one empty house.
        
        captcha – “fixes”
        
        Jenny 2.1.1.1.1.1
        
        9 September 2010 at 10:04 pm
        
        In fact with the political will it shouldn’t take more than an afternoon to ring all the real estate agents and offer them a lump sum for all the vacant properties on the books.
        
        If there are any families still in shelters by the end of next week it is because someone wants it that way.
        
        Jenny 2.1.1.1.1.2
        
        9 September 2010 at 10:16 pm
        
        In fact with the political will it shouldn’t take HNZ more than an afternoon to ring all the real estate agents and offer them a lump sum for all the vacant properties on their books.
        
        If there are any families still in shelters by the end of next week it is because someone wants it that way.
        
        Herodotus 2.1.1.1.1.3
        
        9 September 2010 at 10:17 pm
        
        There will always be a sector of the pop whos actions are detesable e.g. breaking and stealing from special needs school as per TV1 news. You would require a willing vendor, and with this catastrophe so freash that to spend time and valuable resources in this would be taking away from the initial needs. HNZ cannot even manage the properties within Auck that the either own or lease. “My point. There should not be one family homeless while there is one empty house.” agreed, That is if there are any vacante properties within Chch which I doubt.
        But my response was that I think the relief effort re housing and infrastructure will being to slow down for many valid reasons. Yet there will be some incl bloggers & media with their selfish agendas that are more important than those at the coal face working thru the issues that the public will not be aware or have any understanding of as to why. e.g. the results of after shocks requiring extra inspections. I have not heard from media of this, so many will be unaware of such events and the unavailablity in their situation of roading, building inspectors and other staff.
        Whilst there is this immediate need, as a minor feel good for those in Chch when the initial problems are resolved, perhaps a AB game against Canterbury (festival type incase Dan or Richie get injured for next year) at Lancaster Park and free with TV rights and a telthon type assisting in financial support for the area. (A bit like the forest fires in the mid 80’s in Sydney when our cricket team went and played the Aussies in a one dayer)
        
        Jenny …
        
        13 September 2010 at 10:10 pm
        
        .
        Herodotus, from your comments I gather that you think rental tenants on low incomes made homeless by the quake, are undeserving of any government help to get a roof over their heads. (Well at least, less deserving than the millionaire investors in SCF who were bailed out to the tune of $1.6 Billion)
        
        Firstly you cynically set the scene with a broad smear:
        
        There will always be a sector of the pop whos actions are detesable e.g. breaking and stealing from special needs school as per TV1 news.
        
        Secondly you infer that putting funds into housing the homeless renters will be taking money from more deserving causes, (though you don’t say what, but most of us can guess):
        
        …to spend time and valuable resources in this would be taking away from the initial needs.
        
        Thirdly along with fake praise, you try and infer that there may be no suitable houses:
        
        “My point. There should not be one family homeless while there is one empty house.” agreed, That is if there are any vacante properties within Chch which I doubt.
        
        Well on this you can easily be proven wrong;
        
        Here are scores and scores of recent listings for unsold houses in good condition at reasonable prices in Christchurch, on just one Real Estate company’s website.
        
        Some are advertised as already tenanted but many are vacant.
        
        You can wriggle and squirm all you like, but the fact is, that for a small fraction of the cost of bailing out well off investors who bet on a lemon, all the families suffering homelessness from the earthquake could be housed.
        
        All it will take is the political will. The “Moral Hazard” that Fran O’Sullivan talks about is when apologists for this sort of double standard like your good self, try and argue against any bailouts for the less well off affected by an earthquake but have no problem gifting hundreds of millions of dollars to the well off.
        
        Jenny …
        
        14 September 2010 at 5:16 am
        
        .
        Herodotus; It is interesting, that in your diatribe against Housing New Zealand taking any role in housing the homeless, you also claim (without citation):
        
        HNZ cannot even manage the properties within Auck that the either own or lease.
        
        This shows to me that you are philosophically opposed to the state having any role in the social provision of housing even in case of dire emergency. Using the old chestnut that the public sector is inefficient, your argument implies you believe the private sector would be better left to house the low paid homeless, and that state rentals should be abolished, or run as a subsidy for privat landlords. Which is arguably happening now in Auckland where HNZC leases homes from private landlords providing them with a permanent income.
        
        I also notice that you think that rather than address the problem, you suggest “feel good” palliatives:
        
        Whilst there is this immediate need, as a minor feel good for those in Chch when the initial problems are resolved, perhaps a AB game against Canterbury (festival type incase Dan or Richie get injured for next year) at Lancaster Park and free with TV rights and a telthon type assisting in financial support for the area. (A bit like the forest fires in the mid 80′s in Sydney when our cricket team went and played the Aussies in a one dayer)
        
        Your suggested strategy, reminds me so much of the arrogant quote from Roman times in answer to the inequality of that ancient decadent society, give them “Bread and Circuses”.
        
        P.S. Another weird thing. When you click on the link to the real estate listings, it it like the Christchurch earthquake never happened. In this alternative universe, middle class suburbia is as immaculate and untouched as ever.
        
        capcha – “columns” -Roman maybe? collapsing even? – (Herodotus, like your argument.)
tsmithfield 3

9 September 2010 at 5:37 am

Can’t agree with the article by Smellie. Something he has overlooked is that substantial amounts of the money will come from overseas insurers via reinsurance by NZ insurers and reinsurance by the EQC.

Thus a lot of the money coming into the Canterbury, and indirectly NZ economy will be coming out of the bucket of overseas investors. Thus, new money will be coming into the economy. Therefore, it won’t be a zero sum game, so far as the NZ economy goes anyway.

One interesting thing to note with the effect on Christchurch and its surrounds is the vast disparity of the effect. Many of the houses (including mine thankfully) have been largely unaffected. I went down to work on Saturday morning to check out our building. I was expecting to see the area (Sockburn) flattened. Our building is typical tilt-slab construction. I have always felt a bit nervous about being in that type of building with having great slabs of concrete that could potentially tip over. However, to my surprise there appeared to be little or no impact on the area. We rang around our clients on Monday morning and most of them had little damage as well.

Given the proximity, shallowness, and strength of the quake, it is amazing that there was not a hell of a lot more damage.

It appears that the damage is largely limited to eastern areas with sandy soil, and older buildings that weren’t earthquake-strengthened.

Where rebuilding is required my view is that the government, insurers etc should put money into buying up land that will stand up well to earthquakes for rebuilding houses. I see little point in rebuilding on land that is likely to suffer the same effect next time there is a major quake. The alpine fault is still lurking, after all. In this way some real gains could be made for the city in terms of survivability next time there is a big shake.
- Marty G 3.1
  
  9 September 2010 at 7:17 am
  
  ts. your problem is that you’re seeing GDP as a measure of economic wellbeing. The fact is we’ve lost $4 billion of capital wealth and will now be replacing it.
  
  It’s not just me and Smellie saying this. check out the rightwing economists at The Visible Hand in Economics. The author, Matt Nolan, is regularly published in the Dom.
  
  As TVHE says:
  ” [People are] confused between the flow concept, which is investment and GDP, and the stock concept, which is capital and underlying wealth. We have lost capital, and we have lost wealth – this negative shock is not just sucky for the people who had to face a disaster, but it IS a “negative for the economy” in terms of measured wealth.
  
  I mean flip, if destroying a city is “good for the economy” why don’t we send the tanks into Wellington to blow it up right now? Actually, I’m in Wellington – lets make that Auckland instead
  
  And there was a very good article on yesterday’s morning report.
  
  I think it’s somewhere here: http://www.radionz.co.nz/audio/national/business/morning/2010/09/08/morning_business_for_8_september_2010
  
  and this ABC article
  
  http://www.abc.net.au/news/stories/2010/09/07/3004467.htm?site=thedrum
  
  don’t mistake economic activity for economic wealth.
- lprent 3.2
  
  9 September 2010 at 7:35 am
  
  It is pretty obvious. It is a negative to zero sum game. At the end you don’t have any better abilities to generate wealth than you did before the quake. Sure a few people will be better off because they’re doing construction, but others will take a hit.
  
  Unconsolidated (compaction) or weathered sediments (slips) are always the big issue in earthquakes and probably cause more damage than the actual shaking. One of the issues with trying to pick winners in house siting is that you really can’t be too sure about what sites are ‘safe’ until after the event that destroys some. Even then, a slightly different other event may cause a destruction that the first didn’t. You can only really estimate and guess. It is simpler and more effective to simply over engineer.
  
  These local shallow earthquakes are far more dangerous to ChCh than the alpine fault. That will have dissipated most of its high yield energy through distance and won’t affect the local sediments as strongly.
  - Mr Magoo 3.2.1
    
    9 September 2010 at 8:03 am
    
    Rod Oram spoke exceptionally well (again) on the topic on national radio. (podcast available)
    
    It is worse than that. The foreign money rebuilds the old assets and it is true that all those working on this are extra stimulus. Note also that the industry it will be propping up is in serious trouble and looking at laying off 20k people at the moment.
    However those overseas insurance firms are going to want to recoup that money and thus premiums for the whole country are going to go up to cover that – so we pay in the end anyway.
    He also noted that the rebuild will not increase productive capacity at all.
    
    The way I see it this just ends up being the short term stimulus the nats failed to give us in the first place. What is better is that this foreign money it is coming from greedy insurance companies. Sure we have to pay it back but in the interim it is stimulus and if the government borrowed it for stimulus we would have had to anyway.
    
    He was saying he hoped that CHCH and the government would use this as an opportunity to rebuild the city and make it better rather than just rebuild what was there.
    
    Fat chance there of course. Between the greedy insurance companies wanting to do the min possible and this no-ideas government that will never happen.
- Lazy Susan 3.3
  
  9 September 2010 at 7:58 am
  
  substantial amounts of the money will come from overseas insurers via reinsurance by NZ insurers and reinsurance by the EQC
  
  This is a specious arguement as insurance payouts are not “free” – they are paid for with past and future premiums. Had there been no insurance or EQC then the money saved on premiums would have been available to invest in the economy.
  
  Captcha: faults!… is this software really that smart?
  
  [lprent: Nope. It just has a very long list of words and a pseudo random number generator. Humans are good at reading meaning into almost anything – tealeaves? entrails? captcha? ]
  - Marty G 3.3.1
    
    9 September 2010 at 8:23 am
    
    no but the pattern-identifying software in your head is.
    - Loota 3.3.1.1
      
      9 September 2010 at 8:41 am
      
      Captcha: pint
      
      You are so right.
  - Bill 3.3.2
    
    9 September 2010 at 10:42 am
    
    The truth that they don’t want you to know about what behind what lies behind the captcha.
- Draco T Bastard 3.4
  
  9 September 2010 at 1:43 pm
  
  It’s always a zero sum game no matter how hard the economists, RWNJs and other idiots try to believe it isn’t. When there are limited resources (real resources, not money as money isn’t a resource) then it is always an either/or option. You either put the resources into doing one thing or the other. In this we are now putting resources into rebuilding Christchurch rather than doing the 1001 other things that the community needs.
  
  And yes, as has been pointed out, the loss will be increased by the deadweight loss of profit.
tsmithfield 4

9 September 2010 at 7:30 am

“your problem is that you’re seeing GDP as a measure of economic wellbeing. The fact is we’ve lost $4 billion of capital wealth and will now be replacing it.”

Depends on how we rebuild. The earthquake has shown us what stands up and what doesn’t.
To that extent what we have lost was going to be lost at some stage anyway. So, a fair degree of the damage could be described as a contingent liability. That contingent liability has been effectively offsetting the asset values in Christchurch for decades.

If we rebuild in ways that mitigate future problems we will have eliminated a fair degree of the contingent liability for the future, so there will be an effective net gain in assets over the long term as there will be less loss in future events. Therefore, even from the perspective you are arguing real wealth will have improved because the spend will reduce future liabilities, not just replace what has been lost.
- Marty G 4.1
  
  9 September 2010 at 7:43 am
  
  We’ve lost $4 billion of physical capital. Now we have to expend financial assets to rebuild that. It is not a wealth gain. It is a wealth loss. The rebuilding will boost GDP but that just shows the limitations of GDP as a measure of economic or broader human welfare.
  - Bunji 4.1.1
    
    9 September 2010 at 8:55 am
    
    GDP is just cashflow. Any analysis of a balance sheet for the economic wealth of a person or business is going to look at assets as well as cashflow, as it needs to for a country. Yes, your cashflow has increased, but your assets have been wiped out. The bank isn’t going to look at your mortgage more favourably if you get a pay rise but the house it paid for has been destroyed.
    
    (and GDP certainly isn’t even trying to be a measure of broader human welfare…)
- Loota 4.2
  
  9 September 2010 at 8:44 am
  
  If we rebuild in ways that mitigate future problems we will have eliminated a fair degree of the contingent liability for the future,
  
  If you can tell me how Key and Brownlee’s ‘retroactive building consents’ i.e. ‘build now and get it approved against current standards sometime in the future’ system will get Christchurch to improve their buildings and “mitigate further problems” I will be really impressed.
  
  Basically the only improvement I see happening is that old weaker buildings have been taken out of the stock. But the earthquake did that, not the Government.
the sprout 5

9 September 2010 at 8:38 am

The dilemma seems to originate from a misplaced expectation of consistency.
Welfare for the rich has never been a problem for National and ACT.
It’s only abhorrent to them when it’s welfare for those who actually need it.
- F.Y 5.1
  
  9 September 2010 at 9:11 am
  
  true. I’d say it’s not entirely “welfare” but the passing of potential to influence power structures in the future. Poor people/non-company investors are outside the group/culture and could believe/do anything. Why give them anything? They’re impossible to control/predict.
  
  By giving money to SCF investors but not specifically people who have lost in the quake, the balance of power goes to those with the financial resources to influence Christchurch in the rebuild/allocation of work/livelihoods.
BLiP 6

9 September 2010 at 8:39 am

I see that premiums are going to rise for all of us because of that luckless lot in Christchurch – its something about “spreading the risk” – fucking socialist insurance industry!!
- Loota 6.1
  
  9 September 2010 at 8:48 am
  
  I propose that we put a 100km ring around Christchurch and legislate so that insurance companies must draw their increased premiums from within the radius.
  
  After all, why should I have to pay for someone else’s frakked up property with my insurance money when I chose to live in a property sitting on top proper bedrock and they took the risk of living on swampland?
  
  Teach them some individual frakkin responsibility for their bad choices.
  - Mark M 6.1.1
    
    9 September 2010 at 8:56 am
    
    Your all class Loota. (NOT)
    cantabrians dont complain when regular North Island floods push up premiums , when overseas Earthquakes and Tsunamis push up premiums.
    thats because we have compassion , something you, on whatever planet you live on seem to be lacking.
    
    Im sure if the shit hit the fan in your area you would be the first one whining for help.
    - Pascal's bookie 6.1.1.1
      
      9 September 2010 at 9:21 am
      
      I’m pretty sure Loota was snarking there Mark.
    - Blighty 6.1.1.2
      
      9 September 2010 at 9:49 am
      
      Mark M, Loota is clarly making fun of the people who say it’s a matter of personal responsibility
    - bbfloyd 6.1.1.3
      
      9 September 2010 at 1:10 pm
      
      cantabrians don’t whinge? now that’s funny!
      - mcflock 6.1.1.3.1
        
        10 September 2010 at 1:39 pm
        
        well, not as much as Aucklanders anyway.
  - Puddleglum 6.1.2
    
    9 September 2010 at 9:55 am
    
    I’d go further Loota – I don’t think I should provide a subsidy to all those who build on hills, near the shore, in wet areas, etc., etc.. In fact, I think it should be illegal for insurance companies to charge any two home-owners the same premium – why should I pay for my neighbours’ bad decisions on how they situate their house on their property, the kinds of materials they use, etc.?
    
    And don’t tell me the transaction costs for insurance companies (who would no longer be able to operate from actuarial tables at all) would go through the roof. So what? Why should I subsidise the insurance companies doing business by having them walk all over my economic freedom NOT to have to pay for others’ mistakes??? Of course, that would mean that all our premiums would probably go up astronomically as the cost of the insurance business goes up but at least we’ll all be FREE and unconstrained by our fellow human beings’ choices!
    
    Bliss!
jbanks 7

9 September 2010 at 9:01 am

You buy a house, you buy insurance.

That is all.
- BLiP 7.1
  
  9 September 2010 at 9:30 am
  
  You invest with a finance company, you take the risk, that is all . . . oh, hang on
  - jbanks 7.1.1
    
    9 September 2010 at 9:49 am
    
    There was a Guarantee Scheme in place that both Labour & National supported. The Govt. is obligated under this guarantee to pay out the investors. The Govt. is under no obligation to pay out home owners who choose not to insure.
    
    It’s really not that hard to comprehend.
    - Blighty 7.1.1.1
      
      9 September 2010 at 12:55 pm
      
      no legal obligation, no. But that’s not the test of whether a government is doing what’s right. If it was (Godwin alert) then everything that the National Socialists did was OK because it was within the law of Germany at the time.
      
      the question is what is morally right, not whether the government is doing the bare minimum that it legally must.
      - jbanks 7.1.1.1.1
        
        9 September 2010 at 1:53 pm
        
        What’s morally right is what is best for the survival of the group. Paying out house owners who undermine our vital insurance system will only benefit them at the determent of society.
        
        r0b 7.1.1.1.1.1
        
        9 September 2010 at 1:55 pm
        
        I’m just curious jbanks – who do you think makes up “society”?
        
        jbanks …
        
        9 September 2010 at 2:00 pm
        
        A collection of individuals.
        
        r0b …
        
        9 September 2010 at 2:04 pm
        
        Individuals, like, say, house owners?
        
        jbanks …
        
        9 September 2010 at 2:12 pm
        
        House owners are a part of society. But as I said, paying out those minority uninsured individuals would be at the expense of society as a whole.
        
        r0b …
        
        9 September 2010 at 2:16 pm
        
        I don’t think it’s so easy jb to distinguish between the health of society as a whole and the health of the individuals who make up society,
        
        jbanks …
        
        9 September 2010 at 2:28 pm
        
        “I don’t think it’s so easy jb to distinguish between the health of society as a whole and the health of the individuals who make up society,
        
        Imo if people choose to risk not to have insurance then that’s their responsibility. Giving people without insurance the same benefits as those with is a dangerous precedent to set.
        
        r0b …
        
        9 September 2010 at 2:37 pm
        
        Imo if people choose to risk not to have insurance then that’s their responsibility.
        
        Imo one of the defining features of a society is how it chooses to take care of its weakest members.
        
        Gotta go for now…
    - BLiP 7.1.1.2
      
      9 September 2010 at 1:05 pm
      
      Can you please show me where in the DoG it says New Zealand has to pay back foreign investors, with interest?
    - Draco T Bastard 7.1.1.3
      
      9 September 2010 at 1:51 pm
      
      The government is only obligated to do so if the finance company hadn’t broken the terms of the agreement. This government didn’t even wait long enough to discover that before paying out.
- Blighty 7.2
  
  9 September 2010 at 9:53 am
  
  like BLiP said but also, what do you say to the children of parents who lost their jobs, couldn’t afford insurance, and now have wrecked houses? Do you say ‘thems the breaks, kid’?
  - jbanks 7.2.1
    
    9 September 2010 at 10:03 am
    
    What on earth are you on about? Welfare is still available after the earthquake. There’s even Earthquake Support Subsidies & Earthquake Redundancy Payments.
    
    Also there’s no such thing as ‘couldn’t afford insurance’. You buy a house, then insurance is part of this process.
    
    Wtf is the point of people getting insurance if the state will bail them out if they choose not to fork out all that money for it?
    - Pascal's bookie 7.2.1.1
      
      9 September 2010 at 10:11 am
      
      So you object to the 350/week/employee subisdy being paid to SME owners who failed to get insurance?
      - jbanks 7.2.1.1.1
        
        9 September 2010 at 10:29 am
        
        Morally I object. But I think that it’s a pragmatic thing to do temporarily.
        
        Forking out tens to hundreds of thousands to people I object to.
        
        Pascal's bookie 7.2.1.1.1.1
        
        9 September 2010 at 10:48 am
        
        Why is one pragmatic and the other not?
        
        mickysavage 7.2.1.1.1.2
        
        9 September 2010 at 11:26 am
        
        So Social Welfare for employers and wealthy investors is OK but Social Welfare for income poor landowners is not?
        
        jbanks …
        
        9 September 2010 at 12:07 pm
        
        You got it. It’s about viable investment.
        Not paying out irresponsible landowners will not be detrimental to our economy. Not paying out employers and SCF investors would be.
        
        You own a house, you have insurance. No exceptions.
        
        F.Y …
        
        9 September 2010 at 12:26 pm
        
        Not paying out irresponsible landowners will not be detrimental to our economy. Not paying out employers and SCF investors would be.
        
        LOL You’re taking the piss, surely. Are the implications of the statement due to self parody or mental retardation?
        
        jbanks …
        
        9 September 2010 at 12:57 pm
        
        You not speeka da finance fool?
        
        SCF’s collapse would have damaged the economy a whole lot more than the cost of paying out investors.
        
        BLiP …
        
        9 September 2010 at 1:12 pm
        
        You’ll have some evidence to back that up, then?
        
        jbanks …
        
        9 September 2010 at 1:24 pm
        
        Finance Minister talks of ‘minimal disruption’ to wider economy from South Canterbury collapse.
        
        http://www.nzherald.co.nz/business/news/video.cfm?c_id=3&gal_objectid=10670273&gallery_id=113600
        
        bbfloyd …
        
        9 September 2010 at 1:47 pm
        
        not forgetting, of course, that the nats encouraged a rash of high risk investment by extending the guarantee scheme earlier this year. one wonders how this would have played out if they had played it straight.
        
        if you were capable of pulling your head out of your arse, then wiped your eyes with a clean rag, you might see the timeline that goes back to that decision creating a huge money pit for the wealthy nat backers.
        
        btw, how big will your payout be?
        
        BLiP …
        
        9 September 2010 at 6:00 pm
        
        That’s it? A New Zealand Fox News Herald puff piece – reporting the words of Blinglish – without one specific?? I’m going to assume you’re in Christchurch and waiting for your primary school to re-open. There’s the indelible odour of young troll about you. Tell me, what’s your favourite iwi?
        
        Blighty …
        
        9 September 2010 at 1:00 pm
        
        or, to put it another way: ‘fuck you poor peps ,more taxpayer money for the rich!’
Richard 8

9 September 2010 at 9:56 am

I think that there is absolutely a moral argument to provide for the uninsured in CHCH. Yes, it would be better if those people had insurance, but due to some combination of being either poor, stupid, or misinformed, they don’t. We should be helping them out of their situation, not blaming them for their situation.

In some ways, the same argument applies to SCF. If somebody who invested in SCF lost so much that they could no longer avoid housing, clothing, or food, then the various social mechanisms that we have (dole, etc) should have looked after them. And that would be good. Such people (if there were any) were obviously stupid, greedy, or misinformed, but we shouldn’t blame them for this, we should help them out of their predicament.

The problem with the SCF bailout is that it didn’t just target those who really needed help, it targeted those who had only lost a bad “investment” (which is likely the majority of investors) and also those who invested at the last minute in the anticipation that they would be bailed out. Neither group actually need rescuing by the tax payer from the poverty line.
disengaged 9

9 September 2010 at 10:07 am

One thing (of the many) that I am finding interesting about the SCF Vs Quake debate is that most people seem to be assuming that the SCF investors were all greedy fat cats taking advantage of the taxpayers to feather their own nests, whereas the uninsured quake victim is a worker poor, hard done by victim. I actually suspect that they may in fact both be very similar people.

Most of the people who I know that have been effected by SCF (which granted is a limited subset) are retired people who have invested large portions of their lifesavings into SCF for two reasons: 1. Because of that nice Mr Hubbard man and 2.Because it was covered by the Govt Guarantee Scheme and therefore the risk of them losing their lot was greatly reduced. They weren’t greedy or looking for quick returns, but because they are living off of the interest of these investments even a 1% increase on return would make a big difference to their life. So if they had lost their savings they more than likely would be left pennyless at a time in their life where it is impossible for them to recover (not a great deal of employment opportunities for octogenerians).

Turning to the uninsured quake victims, If you have a mortgage then normally it is compulsory to have your house insured (not the contents), in fact if you don’t do it yourself in many cases the bank will do it on your behalf and add the premiums onto your payments. So the people most hurt are likely to be the retired people who are asset rich (paid off their home many years ago) but are cash poor (living on a pension) and have cut their expenses to the bone. They will have no means to rebuild and many may be forced to give their independance and move in with family, retirement homes etc.

Either way it’s not a pretty picture and I’d like to think that New Zealand is the type of country that will work to help those in need.

I like your idea of compulsory EQC cover being included in rates (I’d also like to see third party car insurance added to registrations too, but that’s for another debate). As at the moment the only benefit I see from EQC is to the insurance companies, not to the insuree.
- Pascal's bookie 9.1
  
  9 September 2010 at 10:13 am
  
  Either way it’s not a pretty picture and I’d like to think that New Zealand is the type of country that will work to help those in need.
  
  This.
  - jbanks 9.1.1
    
    9 September 2010 at 10:25 am
    
    Providing welfare such as Earthquake Support Subsidies & Earthquake Redundancy Payments – YES
    
    Spending tens of thousands on fixing or hundreds of thusands on replacing your home –
    NO
Bill 10

9 September 2010 at 10:26 am

Why is the industry of vultures (private insurance) allowed to exist in a civilised country?

People making profit out of the misfortune of others, or those peoples’ fear of misfortune, while condemning those who didn’t buy into the fear or who couldn’t afford to, is beneath contempt.

In the earthquake situation, the existence of private insurance is about to lead to a whole raft of class ridden aftershocks that wouldn’t exist if the state controlled the entire insurance market.

Time to shut out the private insurance companies.
- clandestino 10.1
  
  9 September 2010 at 4:21 pm
  
  Insurance is one of the most brilliant and fair concepts ever conceived by man. Get your head out of your ar$e
  
  captcha: ‘market’…this thing IS rigged
  - Tigger 10.1.1
    
    9 September 2010 at 6:25 pm
    
    Cland – that’s the stupidest generalization I’ve read in ages.
  - Vicky32 10.1.2
    
    9 September 2010 at 6:26 pm
    
    Oh yes – do you remember that before Fire Brigades existed, competing insurance companies would literally fight so that their crews could sign up a desperate home-owner while her house burned around her ears, and only then would the winner extinguish the flames? Brilliant – yeah.
    Last night on Fair Go I saw again the story of Sovereign’s refusal to pay out for a man who’d had a mortgage protection policy, and who had lost a leg, on the grounds that he needed to have lost *two* limbs in order to qualify! Brilliant for Sovereign, yes, but fair? Get *your* head out of your bank book…
    Deb
    - Loota 10.1.2.1
      
      9 September 2010 at 7:14 pm
      
      Come now Vicky, I am pretty sure the guy who got maimed had an insurance policy which stated very clearly, somewhere in the 30 pages, in 7.5 point arial, as part of a footnote, that the insurance company could only pay out in the event of losing two limbs and a simultaneous martian invasion. Look that’s fair and square, buyer beware.
      
      Yeah thank you Sovereign, you bunch of ***holes.
      - Vicky32 10.1.2.1.1
        
        10 September 2010 at 6:17 pm
        
        The worst thing is that the insurance was through ASB who insisted on it as a condition of his mortgage – he hadn’t even wanted it, then was thankful he had it after the horrible trauma of losing his leg.
        I know what company(ies) to avoid! I’ve noticed that most insurance companies always go out of their way to not pay out – except I must say good on you State who paid without question when some tosser stole my son’s bag at the IMAX cinema in Auckland in 2008…
        Deb
    - clandestino 10.1.2.2
      
      10 September 2010 at 12:19 am
      
      What about all the times insurance has worked for those who bought it? The stolen stereos, the broken windows? As a fair measure of risk and value it is proven.
      I suggest you watch less TV….or get a job
      - Loota 10.1.2.2.1
        
        10 September 2010 at 12:39 am
        
        Frak the stolen TVs and the broken windows, we are talking about a man maimed for life here and a corporate which has walked away; not replacing BS material possessions.
        
        clandestino 10.1.2.2.1.1
        
        10 September 2010 at 12:55 am
        
        What about the straw-man in the hayfield??? You’re gonna have to do better than that emotional blackmail…show me something endemic
        
        Maynard J …
        
        10 September 2010 at 1:15 am
        
        How about this. Two Christchurch homeowners face houses in ruins. One will get all their money back, and be well looked after in the mean time. One has no idea what their future holds and can do nothing tohelp their situation now. The first, of coruse, took out home insurance, the second did not. The first, in paying for insurance, forfeited the fourth week of a European holiday. The second, in not buying insurance, chose not to forfeit new shoes and school uniforms for their children, home heating and repairs on a washing machine.
        
        How is that brilliant and fair? Simple example, but the idea that those who don’t take insurance out are being cowboys with risk is absurd, inaccurate and simplistic. It’s easy to spend a little extra money if you have a lot to spare, once your needs have been met.
    - infused 10.1.2.3
      
      10 September 2010 at 12:54 am
      
      How about they read their policy… It’s the same as investing… for gods sake, do some research first. Almost a darwin award.
      - Maynard J 10.1.2.3.1
        
        10 September 2010 at 1:19 am
        
        Yeah, the dumb bastard should have known that they were going to lose one limb in a few months and looked for a policy that would have covered it. But then perhaps they did, and the two-limb policy didn’t cover a scalping while using a go-kart and they couldn’t afford both policies, and their crystal ball got it wrong, they lost the limb and didn’t get scalped. ffs mate are you really stupid enough to believe what you wrote there?
        
        If that’s how dumb you are, no doubt you’ll be up for one when you decide to chop your arm off with a chainsaw to win a bet or something that’s actually stupid.
        
        infused 10.1.2.3.1.1
        
        10 September 2010 at 5:14 pm
        
        The one arm/one leg/two arm/two leg is quite comonly known. People should read their policy.
  - Puddleglum 10.1.3
    
    9 September 2010 at 8:08 pm
    
    I can see how insurance is brilliant, in the sense that it’s a brilliant device for leveraging money from anxious people in individualistic societies where they are left to manage risk in isolation from each other.
    
    But how is it ‘fair’?
    - Bill 10.1.3.1
      
      9 September 2010 at 8:58 pm
      
      It is fair insofar as we are all fair game. No?
      
      I mean, seriously. My peers (as expressed through societal norms) expect me to get life insurance!
      
      ie Society expects me to pay money to get money for when I no longer exist? And if I don’t then I’m selfish…not that insurance agencies are shameless profiteering bastards?
      - clandestino 10.1.3.1.1
        
        10 September 2010 at 12:14 am
        
        The money’s for your kids (if you have any). Why can’t some people just accept some things are here to stay coz they are simply too good to throw away??
        
        Loota 10.1.3.1.1.1
        
        10 September 2010 at 12:40 am
        
        Yeah, you’ll see this argument come back to haunt ya.
        
        Bill 10.1.3.1.1.2
        
        10 September 2010 at 12:40 am
        
        No, you idiot. The money’s for the recipients (the insurance companies) to invest and make a profit from.
        
        You’re just the expression of the fear factor that provides them with their cash flow.
        
        clandestino …
        
        10 September 2010 at 12:57 am
        
        Riight…it’s idiots like you that are gonna cost us all a fortune…we’ll see how that comes back and haunts us.
Treetop 11

9 September 2010 at 11:12 am

I have been doing a comparison with the Christchurch earthquake residents and South Canterbury Finance. I have asked myself the following questions:

1. Christchurch earthquake magnitude?
2. Government assistance for the Christchurch earthquake residents?
3. Source of resources for the Christchurch earthquake residents?
4. Level of trauma for the Christchurch earthquake residents?
5. Duration of trauma for the Christchurch earthquake residents?

Substitute the word Christchurch earthquake for South Canterbury Finance.

My fifty years of life has taught me to look at my own resources first.
Read the fine print when signing a contract.
Experience is something you get after the event.
Anger is an emotional response to discomfort.
What goes around comes around.
Jenny 12

9 September 2010 at 12:02 pm

Fran O’Sullivan worries that the Christchurch Earthquake is a “moral hazard” for the government.

The answer must be that:

The Christchurch Earthquake has split open this government’s caring facade’ and revealed a very serious deficit in their ability to address the problem of those on low incomes made homeless by this quake.

The Minister of Revenue has put out a statement on the earthquake here.

Yet dispite the homelessness caused by the earthquake the Minister of Housing is still keeping silent about what the response from his department will be.

In Fact yesterday in Hon. Phil Heatley’s first Media release since the earthquake. It was like it never happened.

Media Release – 08 Sep – Hon Phil Heatley

Has the Minister and his Government Department been caught flat footed by this disaster, because Housing New Zealand has been turned from a Social Service provider, into a cash cow provider for landlords and developers?

In my opinion there is no excuse for even one family to be homeless by the time of the Mayoral election. If any suitable and undamaged property on the market is left empty by the inaction of the Ministry of Housing then serious questions need to be asked.

I hope both candidates are lobbying central government for a proper response, from the Ministry of Housing. If not the voters of Christchurch need to ask why?

Is this silence from the Ministry of Housing trying to hide a deliberate and callous decision made by the Minister and his advisers not to make a response to the Earthquake?

Is Housing New Zealand trying to increase their rental stock Christchurch to meet the demand?

Will the Minister allow them to?

captcha – “actions” how we will know them.
- Jenny 12.1
  
  9 September 2010 at 4:43 pm
  
  With Minister of housing Phill Heatley still crouched under his cone of silence. Now might be a good time for the shadow minister of housing to speak up.
  - Jenny 12.1.1
    
    9 September 2010 at 7:29 pm
    
    When the Shadow Minister of Housing speaks up she should tell Heatley to do his job.
dave brown 13

9 September 2010 at 2:03 pm

Where have we seen this before, oh yes big banks baled out while subprime homes abandoned for c
carparks.

antispam: pause (between aftershocks)
- Bill 13.1
  
  9 September 2010 at 7:25 pm
  
  Indeed Dave.
  
  I live a ways south of Christchurch and am about to put up my first refugee…a renter who has lost their home and is touring the S. Island on the fly buying time. (Anybody want to claim that such people are not refugees…internally displaced persons?)
  
  In two weeks my home opens to a Cantabrian seeking temporary respite. And I very much suspect the fact it is temporary is only down to the fact that their connections are just a bit too deep for them to feel able ( at this moment) to tear up their roots and walk away for good.
  
  There are going to be significant numbers of people flooding out of Christchurch in the not at all too distant, adding all types of additional pressures to already barely adequate social provisions in NZ.
Augustus 14

9 September 2010 at 2:11 pm

The more risk cover can be taken away from private insurers the better. A universal levy through rates is a far better option. That would also not give insurance companies an excuse to increase premiums, after all they’d cover less risk. Maintaining the insurer’s profit margins was not part of my insurance policy contract when I signed it, but it seems to be their all overriding concern. They must spend more staff time on finding loopholes than on helping clients.
prism 15

9 September 2010 at 9:06 pm

I was unsure of tenants responsibilities for insurance as I had read about a demand for reimbursement for house damage against a tenant by a landlord. It seems that a tenant can be found liable if a landlord can make a viable case against him/her. If there was to be an absence of moral hazard to both parties, it seems the tenant needs to pay a compulsory minor insurance cost to cover the risk of negligence etc. I think people would not know the extent of tenants’ liability – at present the dwelling insurance situation seems inadequate.

I found this – on the NZ Dept of Building and Housing info under landlord’s obligations : link
Pay rates and any insurance taken out by the landlord. (Any insurance taken out by the landlord is unlikely to cover the tenant’s liability for damage.)

This is expanded further on the Otago university site :
What insurance should I have?
The landlord is responsible for insuring the building. As a tenant you need to have your possessions adequately covered by an all risks policy. It is also advisable to take out liability cover in case of major damage to the landlord’s property (eg a fire caused by cooking or by an electrical fault in an appliance owned by the tenant).
Otago link