Personal Finance Blog: David Chaplin
Friday 17th October 2008
|Text too small?|
He explained that instead of the usual cut-throat inter-bank lending practices - where any perceived weakness in a rival was met with high interest rates or a refusal to lend - the competitors eased off the pressure, handed over billions to each other more or less free of charge with a ‘we know you’re good for it’ handshake.
My Swiss friend claimed the temporary suspension of capitalism averted a systemic credit crunch.
Capitalism resumed shortly after and whatever inter-bank solidarity forged in the post-terror crisis has been forgotten. Wracked with debt paranoia the world’s banks now lie in the intensive care unit hooked up to permanent ‘liquidity’ drips and periodically ‘pumped’ up with government cash.
To continue the medical analogy, the latest round of nationalisation and deposit guarantees are the financial equivalent of defibrillation. The central bank doctors are now watching anxiously for the heart monitor to start beeping again.
The New Zealand government reluctantly applied its own emergency procedure. And you can see why it was reluctant. The rapidly evolving Reserve Bank deposit guarantee scheme has already distorted market operations. For example, the NZ Treasury cancelled a government debt-raising exercise this week due to lack of demand.
The latest changes to the scheme, announced Wednesday night, seem more sensible. Finance companies no longer have blanket coverage; a concept of risk has been reintroduced.
There is more change to come. Rewriting the rules of capitalism is a tricky business.
But for the next two years at least New Zealand taxpayers will have to carry an $150 billion ‘contingent liability’ on their books. The government ‘guarantee’, for what it’s worth, is a promise to ourselves that if we go broke, we’ll pay ourselves back.
We’re good for it.
|Business writer David Chaplin blogs on personal finance. David is the editor of ASSET Magazine and also writes for Good Returns.|
No comments yet
28th October 2021 Morning Report
Wellington Drive Technologies Limited (NZX: WDT) Performs Strongly in Q3-2021
Ryman Healthcare Limited (NZX: RYM) Acquires Extensions to Two Existing Victorian Sites
Promisia Healthcare Limited (NZX: PHL) Banking Covenant Update
Pictor Limited Announces Start of US Clinical Trials for SARS-CoV-2 Serology Test
Arvida Group Limited (NZX: ARV) Opening of Rights Offer
Move Logistics Group Limited (NZX: MOV) Announces $40m Capital Raise
27th October 2021 Morning Report
The a2 Milk Company Limited (NZX: ATM) Investor Day 2021
Contact Energy Limited (NZX: CEN) Considers Green Capital Bond Offer