Isn’t it funny how you never see photographs of people smoking these days? From my experience of events like this there’s always decent photo opportunities in the smokers’ corner but the photographer has neglected them – note the proliferation of beer and wine glasses, though.
The pics in question appear to be from last year’s INFINZ (Institute of Finance Professionals of New Zealand Inc) awards night, not the 2010 event, which received so much press coverage this week (I wasn’t invited).
Despite the many news stories mentioning the INFINZ night of nights the actual awards winners got buried in the avalanche of news that thundered out of Simon Power’s speech to the gathering of finance’s finest. The INFINZ website looks like it needs an update too, as I couldn’t find any reference to 2010 on it.
Nevermind, Power had much to say including: announcing the new uber-regulator, the Financial Markets Authority; upgrades to KiwiSaver, and; extensions and alterations for the new, but leaky, financial advisory regime.
Looks like Power could’ve banged on for ages more but was constrained by the imminent awards ceremony and the serving of dessert.
“There is more to come, including a discussion paper on our securities laws that is due to be released in the next few weeks,” he told the INFINZ crowd. “Watch this space.”
There’s hardly a news vacuum at the moment – space is at a premium. But I have been watching the space between Power’s lines in this story where he denies the government will ban adviser commissions, as Australia has recently done.
“However, I currently have no plans to mirror this initiative in New Zealand law.” Power says.
After all the Australian and New Zealand governments are not joined at the hip. And it was just a coincidence that Australia and New Zealand jacked up the price of cigarettes on the same day.
I currently have no plans to take up smoking. But I wouldn’t mind a drink.
As I have watched the contagion aspect of the European debt pickle develop it has become obvious that the Euro-bloc debt markets are effectively in a state of war. Goldman Sachs (and others) have now called on its clients to short the struggling fringe countries of Europe through the use of CDS’s, or Credit Default Swaps.
The recent surge in CDS’s forced the situation in Greece, pushing the gap between the Bund and Greek bonds over 600 basis points and preventing Greece from being able to borrow from either the market or banks, ensuring they needed to call upon the IMF and the Euro-bloc for a €45 Billion bailout. (Clearly the action from Tuesday 27th April following a rating downgrade to “junk” from the S&P rating agency and a move out to 17% in yields in the 2 yr Greek bond kills any immediate chance of a bailout too – so we are maybe now looking at a haircut for all Greek creditors, which basically means the European banks.)
From Zero Hedge over the weekend we had the following: “Earlier we pointed out the surge in CDS on a variety of PIIGS banks, mostly in Portugal and Spain. Now we know why: Goldman’s Charles Himmelberg has just reiterated his call for Long CDS on local banks in Portugal, Spain and Italy, hedged by selling Main (iTraxx) protection. It is our view that as accounts plough into this trade and as bank spreads blow out, it will only accelerate the funding complexities, the bank runs and the inevitable collapse of the financial systems in all of the other impaired peripheral countries, ultimately leading to the collapse of the EMU. Will Goldman be accused next of destroying Europe? Stay tuned.”
And from Citibank we have the following – “Our current thinking is that any risk of debt restructuring in Greece is not an immediate prospect as, from a pan European perspective, such an event would merely transfer the problem to other countries with significant exposure to the defaulting country and could prove catastrophic from both a growth and stability perspective. It is therefore in the interests of all euro bloc members to avert such a course of events at all reasonable costs.”
So here we are – War has effectively been declared between Bernanke’s Investment banks and the governments of Europe – surely we are not going to see cynical punts from the US banking giants take down the entire European financial system? (Remember this is say 30% of the global system, and in a fractional banking world it means curtains for everyone.)
From what I’ve been reading, if there is not a major political response (and quickly) then this is exactly what will happen. Basically as I have been pointing out repeatedly over the past month or two you cannot attack the weakest of the Euro-bloc countries without indirectly harming the viability of ALL European countries, because of the exposure of the European banking system to fringe Europe. And by fringe Europe I am not just talking about the “Club Med’ countries, because there are further substantial exposures to the likes of Latvia, Lithuania etc. that are in serious trouble as well.
How ironic that a group of US Investment banking giants, hauled back from beyond the brink by massive US taxpayer contributions, are now going on a goose hunt such that if allowed to succeed they will almost certainly bring down the global financial system – as if these precise operations have not caused enough chaos in the world, they are now showing just how powerful their ‘fancy financials’ really are. This was always going to be the case as the lack of regulation allowed their market size to grow to 10-20 times the size of the global cash economy – how could it end in any other way?
In other words we have a global cash economy of approx $US58 Trillion and an opaque OTC derivatives market of anywhere between $US600 Trillion to twice that depending on who you believe – and as last week’s debt markets proved, still growing, still out there and very, very dangerous.
It is becoming increasingly clear as the facts emerge that Goldman anyway has been playing fast and loose with its OTC derivatives, and for instance in the very CDO that is now subject to the fraud claim this was found on page 55/6 of the document – “Goldman Sachs neither represents nor provides any assurances that the actual Reference Portfolio on the Closing Date or any future date will have the same characteristics as represented above.”
So here we have a major Investment bank making it very obvious that at any time they could retrospectively alter the Reference Portfolio of the transaction, which presumably wouldn’t be in the interests of the buyer – surely only a fool would stump up good money to buy such a security, but many did – from banks to states to countries they all fell for the sophistication of what was presented to them. So who exactly was Goldman working for in all of these transactions, and the answer is very clear – themselves of course – who would have been so silly as to assume otherwise!
Don’t think because I have pointed out the action occurring in Europe that this is not happening elsewhere – the exact same CDS vulnerabilty exists with the various States of the USA, because clearly they too are unable to fund their budget shortfalls in the current market. This becomes a one-way bet, particularly when it comes from an OTC market so vast and opaque that it leaves the struggling states, banks and countries defenseless.
Close down the OTC market down before it closes down the lives of the entire planet! Tip over the trough before it’s too late. These guys won’t stop slurping until they’re stopped.
That’s what I’d really like to say, but the reality is so different that any chance of settling the OTC question without fatal disruption to the global financial system has long past – and this is precisely because the 6 largest Wall Street banks now control 60% of United States GDP, and the Americans are not going to close these guys down as they represent their only chance of winning the ‘financial wars’.
But as put most succinctly in the weekend’s Washington’s Blog: “Ironically, the proliferation of interest rate derivatives has created the very conditions that they had been designed to protect against – volatility and instability in the underlying credit market, as well as acute vulnerability to the real economy”.
So folks we have finally got there – to the ‘killing of the golden goose’ scene; and all because politicians didn’t have the guts to stand up to the banks in the first place. On the contrary providing ‘zero-cost’ funding and ‘too big to fail’ status to the major financial players guarantees that they in turn will pick off the exposed sovereign economies one by one.
Now I might be fairly strange, but I find that bloody crazy!!
I don’t know exactly how many stories I’ve written on the subject of financial adviser commissions but it’s lots.
This one, penned about a year ago for the Herald, will do as an example. Reading it 12 months on I can hardly fault it, except, maybe, my last sentence, which began “Australia is a long way from banning commissions”.
It was probably the first of Australia’s Storm scandals that sealed the end for commissions. The current disgrace facing Melbourne’s rugby league team is nothing compared to the $3 billion disaster known as Storm Financial.
Mark Weir, who heads the action group seeking recompense for Storm Financial clients, surprisingly had little truck with the commission ban.
“If they want to [improve] the integrity of the industry, they should be introducing some mechanism to determine if they’re lying,’ he said.
“Everything should be taped and kept on a database that ASIC [the Australian Securities and Investment Commission] could have access to. That way it would keep people honest.
“The greed doesn’t start with the financial planner, it starts with those people who own the products, and that is the banks.”
But why is greed so contagious? You could argue, which the Australian and UK governments have, that commissions help spread the virus.
The New Zealand government, absorbed with its own reform of the financial advisory sector, will be under immense pressure to join the ‘death to commissions’ club.
The lobby group representing big fund managers and insurers, the Investment Savings and Insurance Association (ISI) also reacted immediately to the Australian news.
In a statement, Vance Arkinstall, ISI chief, said: “In NZ, ISI is finalising an announcement that will result in a voluntary policy to discontinue the payment of commissions on investment products, including KiwiSaver. The proposed ISI policy will include the discontinuance of volume-based performance bonuses or commission and ongoing renewal commissions.”
Note the voluntary nature of the ISI proposal but compulsion will no doubt follow.
The upshot of all of this is that consumers will have to learn to explicitly pay for advice, which, as Ian Cowie in the UK Daily Telegraph argues will be good for everybody.
But please excuse me, I’ve been over this before. In hindsight, I should’ve used an old story and just charged for it again, and again, and again…
The most outstanding aspect of the past two weeks is just how different the world looks from the previous two weeks – never in my 40 years involved with the financial markets have I seen such momentous changes everywhere across the globe, and with the equity markets taking it all with such apparent calm.
They are failing to comprehend the essence of markets that will prevent all but a few to reach safety when the time comes to do so. Markets and valuations look great until you wish to take the same action as everybody else at exactly the same time, and then they cease to exist for a period.
Sooner or later as these equity markets ratchet up on the back of a manipulated Wall Street, we’re going to hit some news that is going to place everyone on the same side of the trade, and then we’ll see who’s swimming without togs! It’s called the “get me out” trade, and only the early ones get away with it. The rest take the lift, downwards!
Some time ago I wrote about what I observed when Japan’s equity market was ‘melting up’ in the late afternoon, every afternoon, back in the late 80’s and that it was very obviously a concerted effort to manipulate their market, that finally ended badly. Quite clearly the same thing has been happening to the US equity markets, particularly the Dow Jones, and a strategy to buy the market at 3pm and sell on the close at 4pm would be profitable on the vast majority of days. The effort to influence the market is being concentrated on the Dow because it is both the easiest to influence and the market the average person follows. There are some who think we are heading for a sharp ‘jag’ upwards in the equity markets, and the longer the markets advance without a correction, the likelier this becomes. Nevertheless it’s dangerous times out there.
In fact of course there may be no safe places to park money (as we’ve formerly understood it), as both the sovereign and banking needs of the global system suggest neither is presently viable without massive misrepresentation. In fact this word ‘misrepresentation’ is maybe the key political development of this millennium so far, and with it the effective destruction of democracy as most people would have recognised as little as 20 years ago. “Spin” is in – we used to call it bullshite!
Across the world the past two years have seen the most extravagant concentration of wealth in history, and the level of fraud and misrepresentation that has allowed this to happen is without precedent. I can’t believe that this will remain unchallenged for much longer, and it’s clear the politicians are recognising that the tone has changed, even if the equity markets suggest all is well.
If one glances away from the financial pages and reads what’s developing elsewhere then it is obvious the social temperature is rising sharply; anger is on the rise. I expect Europe to erupt shortly into a contagious scrap lead by those who see themselves as political game-changers allied to an increasingly disgruntled public. Or as Andrew Marshall put it last week – “Due to the massive debt levels of western nations taken on to save the banks from the crisis they caused, the people must now pay through a reduction of their standards of living. Naturally, social unrest would follow.” And this time from the head of the IMF “Violent protests could break out in countries worldwide if the financial system is not restructured to benefit everyone rather than a small elite” – (a strange comment to come from a representative of an organisation that has traditionally benefited precisely that ‘small elite’!)
The same development is evident in the US with the ‘tea parties’ leading the news there, and who in rapid time have become a swinging voter bloc with as much as 25% of the vote. They will certainly impact all coming US elections. Although the greater danger is surely the rate at which Americans are arming themselves, as they are free to do, which I think gives the US situation a special edge.
The Greek clamour for money was pushed off the front pages for a couple of days but it appears likely that the ‘bailout’ mechanism will be used this week with a combination of IMF and Euro-bloc support for as much as €45 billion. This won’t be provided without additional austerity proposals, and it will be interesting to see how these are responded to by the Greek people, who are already quite unhappy by the changes to date.
But regardless of the present Greek situation the fact remains that the foreign exposures of German banks (particularly the Landesbanken sector) and those of France and the UK themselves represent a major drag on European recovery, and a recent chart from the Bank of International Settlements shows just how significant this is:
So unless something very dramatic has happened recently this chart suggests a combined exposure to foreign claims by the banks of the ‘big 3 of Europe’ in excess of $US10 Trillion, a figure far greater than their respective sovereign exposures.
My recent quip about the “unspeakable in full pursuit of the inedible” came true pretty fast with the SEC fraud claim against Goldman Sachs, alias the ‘Squid”; and we’re going to see more sacks of money and black ink before this one solves. Of course the SEC claim was likely timed to assist the passage of a Democrat sponsored bill regarding financial reforms, so clearly it has become important for Obama to be seen to hunt down the greedy bankers.
Depending on how this phase goes this may also ultimately lead to a systematic break-up of the ‘too big to fail’ banks as their existence is a clear threat to global financial viability. There are politicians out there pushing this viewpoint strongly, so we’ll see who wins this first round; regardless, the political vultures are circling.
The buyer of the securities involved in the Goldman fraud charge was apparently German IKB Bank, who were known as buyers of anything Goldman’s pitched their way; nevertheless Germany along with the UK and France are all mulling over a ‘blame Goldman’ lawsuit themselves.
This is the first attack on CDO’s or any complex derivative – in other words an attack on an OTC derivative of which there are over $US800 Trillion out there somewhere. This left me wondering whether this is maybe the pathway for the global political attack on the bloated Investment banks. Financially literate lawyers may be in for a big season in the period to come as many of the losers from the individual complex deals are now preparing litigation to recover their losses.
From Jim Sinclair’s site, (and Jim has been hammering on about this for years), we have the following comment:
“Without unregulated derivatives, we would not have had the financial meltdown, mortgage giants Fannie Mae and Freddie Mac would not have failed, and we would not have problems with Greek debt and other sovereign debt. How can this $600 trillion dollar market be unwound? So far, taxpayers and investors around the world have been picking up the tab. Now it may be Wall Street’s turn to pony up some dough. Don’t be surprised if some of them get taken down by their own toxic financial waste.”
But let’s look at some of the various claims of fraud or inappropriate behaviour that have surfaced in the past fortnight, because it’s not only Goldman Sachs who has been on the end of such a charge:
Steelmakersare fighting back over attempts by the $200 billion iron ore mining industry to raise the cost of their main raw material, calling for regulators to investigate an “oligopoly” that inflates prices. Mining of iron ore, essential for making steel, is dominated by Vale SA, Rio Tinto Group and BHP Billiton Ltd., which control about two-thirds of the trade.
Ireland– As the dust settles, it is clear that most of the damage is this crisis – reputational and financial- has been done by just one institution, Anglo Irish Bank. Anglo was taken into full public ownership in early 2009, following the revelation of a number of questionable transactions the previous year. Meeting the bank’s net liabilities, in accordance with the guarantee of September 2008, has already cost the Irish government more than €12 Billion and is likely to cost about €10 billion more.
Matt Taibbiwrites another devastating piece about “How the nation’s biggest banks are ripping off American cities with the same predatory deals that brought down Greece.” This in a story called “Wall Street Banks Looting Main Street” which I found on the Market Oracle site but was originally published in Rolling Stone.
Confirmation from a high place of something I’ve been saying since I began this series – “The scope and magnitude of the bank rescue packages also meant that significant risks had been transferred onto government balance sheets.” And this comment comes from the Bank of International Settlements!
And maybe the longest rumoured fraud that has erupted from the London Gold market where it seems the shortfall in the physical gold has finally been outed, along with evidence confirming a long-running manipulation of prices. This from a story by Nathan Lewis: “Thewhistle-blower in this biggest gold fraud was Andrew Maguire, an experienced precious metal trader in London. In a riveting interview (which is available on the internet all over the world) with GATA director, Adrian Douglas, Maguire describes a new dynamic impacting gold. The fact is there is a huge short position in the market. (Apparently Maguire was struck by a hit and run driver following his initial statements, although he survived with minor injuries.)
So these are just a few of the signs that pressure is coming on everywhere, as scams are uncovered across the globe, and as banks and governments compete seriously for funds. Long after I should have I’ve discovered Peter Warburton, who wrote about the impending financial crisis in a book as early as 1999, and an excerpt I saw of some recent writing suggests he hasn’t lost his touch in making his viewpoint very clear:
“When the global economy collapsed in 2008, governments rescued the banks, the very ones responsible for the collapse. This is because without the banks’ debt-based paper money, governments could not spend the vast amounts they do not really have.
Politicians seek power and bankers seek profit and their collusion is responsible for the present crisis. Do not be surprised at the current state of affairs, the motives of the participants are clear and so are the consequences.
These are exceptional times and while we are helpless to prevent what is about to happen, so, too, are bankers and politicians. They have brought this state of affairs upon themselves and for this we should be grateful—for without their demise we would be enslaved forever.”
So what an intriguing last sentence – I’m going to find out what I can about this guy. (Peter Warburton’s 1999 “Debt & Delusion” is now apparently available at amazon.com reissued by WorldMetaview Press)
But in the midst of all of this I’ll leave it to Confucius to have the last word: “In a country well governed, poverty is something to be ashamed of. In a country badly governed, wealth is something to be ashamed of.” Now that really is the long view, and a view that is quite quickly coming into sharp focus right across the globe.
A long time ago, a bloke called Stephen Rowe applied to be a press secretary for Jim Bolger, who was then Prime Minister.
Bolger attended the final job interview and asked Rowe which newspapers he read? The Herald, The Dominion, the Sunday and business weeklies, Rowe replied confidently.
“What about The Press?” asked Bolger, referring to Christchurch’s daily morning paper, still one of the jewels in the crown for the Fairfax group in New Zealand. Good point, thought Rowe.
Bolger’s basic point: don’t forget the South Island.
The current Prime Minister looks to be in danger of doing exactly that or, perhaps even more unwisely, assuming that the desire of a lot of well-connected, rural, National Party types aligns in some perfect way with the remarkably testy politics of the city once called The People’s Republic of Christchurch.
For a government that spent so long wavering on Resource Minister Gerry Brownlee’s proposals for mining on conservation land, allowing the waves of anger currently intersecting over the handling of Canterbury water looks almost careless.
Perhaps there was unjustified confidence because similar waves of anger crashed, apparently harmlessly, when it announced the Super-City plan for Auckland. The comparison would be mistaken. Auckland politics and Canterbury politics are not the same.
In the end, Aucklanders know their city should be a single entity. North Shore’s Phantom Piddler, Mayor Andrew Williams, makes the case most eloquently just by being himself.
But Christchurch is different. It’s older, it’s whiter, it’s more politically active and community-minded. It’s the sort of place that saves electricity during national savings campaigns even when it’s cold and Aucklanders are barely bothering. It has a remarkably strong volunteer and philanthropic ethic. It is cultured. There are rich people from old families who still somewhat run the place. It’s traditional, in ways both good and bad. There are a lot of Presbyterians and Anglicans.
As a result, actions such as stripping away local democracy have the capacity to become cause celebres, and the front page of The Press in recent weeks suggests the sacking of Environment Canterbury regional councillors is becoming a powerful rallying cry.
Even Alec Neill, the Bolger era MP and outgoing chair of ECan seemed pretty grumpy about it all. And everyone assumes he was well across the government’s plans for ECan after rolling the previous chair and one-time Labour Speaker, Sir Kerry Burke.
Yet with a straight face he helped carry the coffin of local democracy out of the council chamber after ECan’s last meeting this week.
Nor is there any sign that the government has organised its few, but powerful supporters.
Where are the Canterbury mayors who called for ECan’s disbanding? Having clubbed together, lobbied the government and got the report that wrote the regional council’s death warrant, there seems remarkably little effort now from the same mayors to back this politically difficult, highly arguable call that the government has made.
There is another group who stand to benefit from the latest moves, especially the amendment under Urgency and without select committee hearings of the way Water Conservation Orders apply in the Canterbury region.
As a result of this change, Fish and Game must apply to restart the WCO process it was already engaged in, while the promoters of the Hurunui irrigation scheme can continue with their resource consent applications.
It is a clear win for the irrigation lobby, which the government has been saying for months now it supports. More irrigation in Canterbury is important for agricultural productivity, and it can be achieved, with the same sorts of compromises as would allow mining on conservation lands currently protected under Schedule 4 of the Crown Minerals Act.
This is how we catch Australia, by looking again at the national resource base and making new choices about its use. As the New Zealand Institute of Economic Research put it on the mining issue: “To do this, requires moving away from the notion that once land is acquired for conservation it is closed for all future development other than the most low-impact tourism or recreation uses that are deemed compatible with conservation.”
Exactly the same issues are playing out now on water – the first world-beating resource nominated by Finance Minister Bill English when answering questions at a pre-Budget speech for the Wellington Chamber of Commerce this week.
Another source of potential support is companies wanting water on the Canterbury Plains, where the agricultural potential is huge as long as enough water’s available.
A roll call of relevant influence gives the flavour: Jenny Shipley, Don Brash, Ruth Richardson through interests such as private dairy company Synlait, David Teece, the hugely influential and wealthy Kiwi-cum-American academic against whose land the dam on the south fork of the Hurunui River would be built. That scratches the surface.
At some stage, the Auckland-backed Mackenzie Basin shed-farming proposals will re-emerge. And in the background are Genesis, Meridian Energy and TrustPower, all of whom rely for hydro-electricity on the Waitaki and other rivers. Both Meridian and Trustpower have big combination schemes involving both hydro and storage. There is big money at stake.
But this is not their issue to fight, at least not publicly. So far the ministries of Economic Development, and Forestry and Agriculture are doing a great job unpicking aspects of the last 20 years of new environmental regulation which they’ve always felt stifled economic growth.
And this is a government that wants economic growth and is unashamed to pursue it. Its cheerleader is another kind of Cantabrian – pro-development, let’s use it, what’s wrong with a few roads anyway – in the driving seat. Minister of Economic Development Gerry Brownlee is the Member for Ilam, but he is not visible on water.
Instead, poor old Environment Minister Nick Smith is poked out on a stick in front of the TV cameras to deal with feisty 90-year-old ex-councillors threatening a rates revolt, while swallowing Cabinet decisions on Canterbury water management, which it appears he barely agrees with.
It’s clear now, from the papers released to Forest & Bird under the Official Information Act, that there was a concerted stream of advice from about September last year from MAF and MED, two power central government agencies, to find ways to wind back the ability of Water Conservation Orders to stymie new water storage and allocation projects.
The argument is there to be made, but this time, the government has moved at great speed to achieve a sea-change which could upend the way WCOs operate throughout the country.
The debate on mining conservation land, despite some shaky political management, has found that half the population is broadly supportive – a result which was probably more surprising to Resources Minister Brownlee than anyone else.
When he first let the cat out of the bag late last year, he started waiting for the sky to fall. It may have clagged in a bit, but it hasn’t fallen yet.
By contrast, the Canterbury water issue looks cloudier by the day.
Guardian Trust informed me this morning that it “would like to make some relevant clarifications” in regards to an earlier story I wrote about the Asteron KiwiSaver fund.
So, in the interests of clarity, here they are:
“The Asteron KiwiSaver Scheme exposure to the Guardian CashPlus Mortgage Units Fund is less than 1% overall, with the Asteron Capital Fund exposure now at 5.1%, and this exposure is reducing all the time. Furthermore, Guardian Trust has indemnified the assets of the Guardian CashPlus Mortgage Units Fund and guarantees no loss of capital.”
All clear now? That’s good.
The facts revealed in the story, cited directly from the Asteron prospectus, were hardly controversial but an interesting enough example, I thought, of how frozen assets are slowly melting inside KiwiSaver funds – Asteron is not the only one.
However, when the Guardian CashPlus fund froze some time ago, along with several other mortgage and property funds – offered, for example, by AMP, AXA and Tower – many investors were surprised to discover what was really inside their investments.
Maybe that’s because they never really looked or, if they did, the contents were difficult to identify.
The funds management industry has struggled with the concept of transparency mainly, or so the argument goes, because managers want to guard their ‘intellectual property’.
Competitors probably would make use of real-time portfolio information but a list of recent historical holdings is most likely good enough for investors. Some managers are not so precious about ‘lifting their skirts’.
A new fund launched this week by Auckland-based boutique operation Pathfinder, for instance, shows the way. Appropriately, the Global Water Fund takes transparency to heart.
Not every KiwiSaver provider has an appropriate slogan but the Huljich catchphrase ‘Taking KiwiSaver Seriously’ is starting to look apt.
After this week’s announcement from the Government Actuary (GA), the tagline may even have to be upgraded to ‘Taking KiwiSaver Very Seriously’.
The conditions imposed on Huljich are onerous enough and represent the first time the GA has used its powers to publicly punish a KiwiSaver provider.
In a statement, the new, but maybe interim, head of Huljich, Don Brash, “welcomed” the GA’s decision.
“We have every intention of being a leader in the KiwiSaver industry in terms of transparency,” Brash says in the release.
We’ll see.
But the GA was also asking the Huljich trustee, Trustee Executors, to have a good look at itself because it had neglected some of its oversight duties.
Like Brash, Trustee Executors “welcomed the directions provided by the Government Actuary”, calling for more stringent rules for every KiwiSaver manager.
It is possible these new Huljich conditions could be extended to all KiwiSaver providers after a special taskforce investigating the matter reports back to Commerce Minister Simon Power in a couple of weeks.
For some providers the game is getting far too serious. As I hinted in a previous blog, Asteron is very close to pulling the plug on its KiwiSaver scheme, which carries the slogan ‘Financial confidence in retirement’. There are enough clues in the Asteron KiwiSaver scheme’s latest prospectus to support this prediction.
Expect any day now to see Asteron has signed up to encourage its members to shift to a new provider – similar to Gareth Morgan’s deal with the now defunct IRIS scheme.
Here are my wild guesses for which provider will pick up the Asteron KiwiSaver members: Grosvenor; AonSaver; Mercer, or; if you fancy longshots, Huljich.
When was the last time you bought yourself something nice?
Too long ago, according to the latest retail sales statistics.
February’s retail sales were “dire”, said one bank economist. They certainly punched another big hole in any idea that the New Zealand domestic economy is “bouncing back” from the double whammy of its own 2008 recession, followed by the global financial crisis.
It’s a grim possibility that some retailers who thought they’d weathered the storm last year are in for a nasty few more months. Not all will make it. In a country that has had a fright and is willing now to save more and spend less, that’s the harshness of the real economy at work.
With the shallowness of the recovery becoming clear, international investors continued to sell the kiwi off this week as higher interest rates and a more interesting Australian economy attract the interest of many who previously traded both trans-Tasman currencies.
Meanwhile, New Zealand exports look ever more competitive, especially to the country’s largest, most valuable market in Australia. The falling dollar is delivering a textbook fillip to the tradeable sector. Hence the comparatively rosy-looking Performance of Manufacturing Index figures from Business New Zealand this week.
Tradeables are where a real recovery has to come from after more than five years of export sector recession that somehow nobody noticed on Labour’s watch.
So the Big Adjustment grinds on. New Zealand’s experience is a microcosm of the Western world, as credit crunch, ageing population and health-care cost issues coincide nastily in Europe, the U.S. and Japan – still the engine-room economies of the world for all the rapid rise of China and the other BRIC nations.
The Americans, for example, are looking for the same weak dollar export kicker as New Zealand.
That’s why the U.S. and China are shadow-boxing over when and how to revalue the yuan, which by some accounts is 40% weaker than it should be against the American dollar, and needs to rise. This stands to reason: nations that get richer beget stronger currencies and China is definitely getting richer.
Since the Lehmans meltdown and a suddenly weaker West, China has fanned out agressively in the world to buy resources, both valuable and distressed, ranging in our neck of the woods from Australian mining giant Rio Tinto to the Crafar farms. In Australia, note, the government stepped in – Rio Tinto was a strategic asset and the sale stopped.
But Australia is a country with choices and Rio Tinto is a very big company. New Zealand’s ability to stand on ceremony when it comes to the wallets of others is far more limited and it’s a stretch to call the Crafar farms nationally strategic assets on their own. If anything, they seem to be a bit of a liability.
Speaking of which, this week’s Securities Commission actions against Lombard and Nuplex Industries are their own echo of the global financial crisis.
In both cases, the sudden worsening in global economic conditions was critical to their own accelerated commercial headaches. It was uncharted territory. Knowing what to do was far from obvious.
Now that they’re being sued for their judgement during that period, professional directors and former Cabinet Ministers not only face reputational ruin, but will be fighting tooth and nail in court to pin as much of any blame as is going on their professional advisers.
Former Commerce Minister Doug Graham, who once had oversight of the Securities Commission, may have hoped his enumeration of the legal, accounting and other advice on which the Lombard directors relied would be seen as an appeal to reason. And that will be the basis of his defence.
The attack on that will be that directors are there to make judgements based on advice, and that their decisions were wrong.
As a result, the outcome of these cases will constitute critical guidance not only for company directors, but also for all manner of professional advisers, including PR flunkies, but thankfully not at this stage journalists.
It will also guide boards of the future on what they have to tell the market and when. Nuplex directors will argue strongly that they were exercising good judgement by renegotiating their breached banking covenants and that until the negotiation was complete, there was nothing to disclose and great risk to the company from acknowledging the process.
If the courts reject that, there will be a new benchmark for disclosure obligations. After all, the reason for continuous disclosure rules is to prevent accumulating disasters from being hidden “for the sake of the company”. That’s why Millennium & Copthorne hotels is being open about the disaster that has befallen their Chinese joint venture, where some local guy they had managing things has gone and sold about two-thirds of the assets without authorisation. Whether they get a cent back will be a guide to the application of the rule of law in China.
There was also a bit of “blame the advisers” detectable in the opening salvoes from former Feltex directors in the Auckland District Court, also this week.
On the sidelines, some are saying that the Securities Commission is only now getting aggressive because it has been stirred to action by years of prodding and mockery. Others point out that the commission only recently became able to pursue solvent directors rather than insolvent companies.
Either way, the fact remains that the global financial crisis has also changed the landscape for company directors and professional advisers in ways that make the lease on the yacht look quite vulnerable.
For that reason, we can be sure that most of the legal stoushes that kicked off this week will make it to the Supreme Court in the end, and that’s maybe five or six years away.
That was just about enough time for a full economic cycle in the old days.
I apologise in advance for directing you to a powerpoint display but from what I understand not many people were on hand at the Annual Superfund Summit in Auckland to hear Adrian Orr, head of the New Zealand Superannuation Fund (NZS) deliver this address.
But Orr’s powerpoints are occasionally interesting, and usually include some clues about where the NZS is headed. (He didn’t, however, break the news that NZS head of strategy, the well-respected Tore Hayward, has resigned and gone to work at the ACC fund – but I just told you.)
Quite a bit of Orr’s presentation focused on justifying why the NZS is good for the country in ways other than its main stated purpose of bolstering the security of future superannuation commitments.
“Did you know,” the NZS website asks. “If you are currently aged 44, you and other eligible New Zealanders of the same age will be the first to have part of the cost of your New Zealand Superannuation met from the Fund.”
I can’t hardly wait but along the way the NZS “Deepens NZ capital markets, enhances our productivity”, as the powerpoint language puts it.
The presentation also refers to Bill English’s infamous directive for NZS to invest more in New Zealand, pointing out: “There is no prescribed Fund minimum [to invest in NZ], as such it is not inconsistent with our mandate to invest on a prudent commercial basis.”
As I recall, English wanted the NZS to put 40% into New Zealand and, according to Orr’s slides the fund is almost 30% invested here (although about half of that is in cash). This figure “does not include commitments made but not yet called (c$270 million)”.
You also may not know that the NZS is currently “assessing feasibility of global rural land strategy… if strategy proceeds will include, and possible start, with NZ”. So maybe, the fund will start buying back those dairy farms from the Chinese.
This is possibly a good thing. For an alternative view on the NZS, you can read actuary Michael Littlewood’s thrillingly-titled article ‘Pre-funding a government’s future financial obligations – the New Zealand Superannuation case study’ in the academic journal New Zealand Economic Papers. I haven’t got around to reading it yet but I may before I retire.
Down in Christchurch, for the last 20 years, the Family Help Trust has beavered away creating one of the best early childhood intervention programmes in the country, creating futures for families that the statistics would normally be first to write off.
They are doing God’s work. If anyone should thrive under Whanau Ora, it’s committed, innovative, independent organisations like this which have survived more in spite than because of government efforts in the same fields.
The Trust’s focus has been ruthless, which is a big part of why it’s been effective. It will help no child older than five, but it likes to get hold of them before they’re born – their mothers and fathers self-identifying for their poverty, drug or alcohol abuse, criminality, family violence, and social isolation.
They have often decided against applying for government funding when the guidelines would have required them to change what they were proving worked best.
For those first five years of the infant’s life, the Family Help Trust wraps itself around this family unit, treating the infant rather than the parents as its client, and all the influences on the infant as its job to help the parents cope with.
Its success is measured on simple, effective things like reduced rates of smoking in the home, increased involvement of neighbours and wider family members, and on the big issues like reduced family violence, addiction, and criminal recidivism.
In its latest university-backed study, the Family Help Trust was able to prove it has lowered rates of family violence from 40.5% to 6.8% among client families. High levels of reoprted “partner psychological abuse” have also plummeted. The Family First crowd mightn’t like it, but this is happening partly because Trust, among other things, gives the abused adult in a violent relationship the confidence to leave and improve their lot.
The result? Far less violence towards the children of a violent parent as well. Fewer Bailey Kurarikis out the other end. Fewer prisons too, that wasteful expense being dollied up now as a public-private partnership investment opportunity for rental property investors nervously looking for new places to park their money.
About half the Trust’s clients are Maori children, and they have Maori among their staff who have been encouraged to develop a “kaupapa Maori” approach to their services for years. They are not, however, a Maori organisation.
Recently, glacial changes in public funding have delivered a small but important stream of funds from Child, Youth and Family.
That has only come because the Trust, led by the indomitable and visionary Libby Robins, had to go out and find funding for an academically rigorous epidemiological study to prove it was doing anything right before any government agency would fund anything it did.
Ignore for a moment the fact that such a rigorous focus on actual achievements for society’s most vulnerable families has never previously been required of early intervention programmes run by government agencies themselves – amazing as that may seem.
Indeed, one of the best things about the Whanau Ora policy released this week is that – if it works properly – caring about the outcomes will be the absolute primary focus of any funding awarded.
No wonder Finance Bill English thinks Whanau Ora can be funded from current budgets rather than needing new ones. If Whanau Ora works, it should lead to a dramatic cut in wasted funds on current programmes that we know, without a university study to prove it, don’t work as well as they need to.
For English, this is an exciting opportunity. He is doing this as a National Party Minister. He knows if the policy was Labour’s, it might be deemed something like “radical communitarianism”. Under a National-led government, it risks being slagged as no more than “reform”. Such was English’s experience with similar experiments in health reform when he was a Minister in the 1990′s Bolger Government.
And that’s where the Maori Party is useful, because if there’s one thing the Nats and the Maoris jointly believe, it’s the importance of a spot of tino rangatiratanga on the home front. What greater unit of self-determination could there be than the family as a building block of society?
So the Family Help Trust, and a myriad of other, dedicated, non-government agencies living the same experience all over the country – may Maori, many not – should take heart from the intent of this week’s Whanau Ora policy announcements.
The proof, however, will be in whether they benefit, and especially whether merit rather than ethnicity will really win out where the dead hand of bureaucracy has previously been a barrier to success. And if the Family Help Trust does not benefit, how could we not say that the Maori children and families that the Family Help Trust saves have not been the subject of discrimination?
