Sunday, March 20, 2005

Financial Crisis?

Now don't get me wrong, I love living in New Zealand. The people are great and the lifestyle everything you could want. There are just, as in every society, some bad apples as it were.

New Zealand is doing everything it can to gain credibility with the rest of the world for crime prevention, healthcare, and corporate governance. There was a survey published this week that showed NZ as one of the best places to live in the world - specifically Auckland and Wellington. I'd agree of course. Those canny Swiss ranked at the top but then they've got all the gold......

Anyway, back to my story. I should just mention that all of the people and companies that I've mentioned so far did nothing illegal. In fact, they all acted with the full support of the law. It is the law that is wrong. It looks after those with the cash to protect themselves and doesn't allow the wronged to obtain fair justice. I mentioned Lombard Finance last time. Well, they followed the letter of the law in my case and acted within its guidelines. However, if you were to ask me whether I thought they acted in the spirit of the law, HELL NO! But more of that next time....

Let me tell you about another interesting story in yesterdays paper. It concerns finance companies, which of course includes Lombard, and talks about the incredible risks that ordinary Mums & Dads are taking with these companies. How so? Well, each time you lend these guys money (which is what you are doing when you buy a first/second ranking debenture) they lend it out to someone else. Now, when you lend to a bank, there are strict rules and guidelines covering credit and liquidity; with a finance company, they can pretty much do as they like.....and they do. Check out this story for a great bit of background about the NZ industry - the one about the risks was called "The rogue elephant that won't go away" by Bernard Hickey and it was in the Dominion Post this Saturday 19th March - not on-line yet but you will be able to get it here soon.

The NZ property market has been going Gung Ho for a bit and finance companies have been lending by the truckful into this area. When the bubble bursts, and it will for the simple reason that they always do, someone is going to get burnt and who do you think that someone will be? I'll tell you who it won't be: the directors of the finance companies. It will be the Mums & Dads who lent money to these somewhat shady outfits and it'll be their families that suffer.

Some of these companies are run extremely well. There are two in fact that are just so good they should be banks - they have strict compliance and guidelines and are cautious in their approach. Unfortunately, the rest are mostly cowboys or opportunists making a quick buck and riding the wave. Boy, am I glad I don't have money to's good being that I've lost so much money...grrrrrrr. Time for a little lay down before I begin the rant and the rest of this sorry tale.

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