What I said, what I meant

In the Bloggerheads spot on Q&A this morning I said:

It’s not a taxpayer bail out. It’s not north saving  south, urban paying rural.

People who lent to and borrowed from South Canterbury Finance came from all over the country. Only those covered by the Deposit Guarantee scheme will get their money back.

Receivership will enable an orderly sale of assets to minimise the eventual cost and damage to the wider economy.

 The government made the right decision over a business that went badly wrong.

 When I said it’s not a tax payer bailout I meant that the company wasn’t being bailed out.

But the depositors are and the taxpayer will end up paying under the Deposit Guarantee Scheme.

Fees – taken from the big banks not finance companies – will cover some of the cost. The return on the sale of the company assets – as a whole or n pieces – will recoup a lot of money but no-one is expecting that to cover all that’s owing.

John Armstrong asks:

Was it fair that finance companies were included when the scheme was rushed into existence in October 2008 during the darkest hours of the global banking crisis and the last days of the Labour Administration?

Was it fair that finance companies still afloat then got protection while investors in those that had already crashed got nothing? Was it fair that some people had subsequently invested money in finance companies to exploit the Government guarantee?

Possibly not to the first question and definitely not to the second.

The exposure of flaws in the deposit guarantee scheme provoked demands they be called to account for failing to rectify them. . . .

While much has been made of the approval of that extension, it is essentially irrelevant. The Government was obliged to pay out the $1.6 billion to depositors because South Canterbury Finance is still covered by the original two-year scheme which has run from October 2008.

The Crown could have withdrawn its guarantee earlier if it considered there was misconduct on the part of the company or a material change in its financial position for the worse.

But the Government would still have had to pay out investors after the company inevitably defaulted as a result of the guarantee being withdrawn. Some money would have been saved. However, the Government gambled on the appointment of restructuring guru Sandy Maier as chief executive to get large portions of the company back on a sound footing. The gamble failed. But it was surely worth a go.

The simple truth is that once South Canterbury Finance was under the umbrella of the deposit guarantee scheme, the taxpayer liability was there for as long as the scheme was in place.

There are grounds for arguing the scheme has been in place too long. But that is from the benefit of hindsight.

. . . Both main parties – Labour in setting up the scheme and National this week in seeking to minimise both the cost to the taxpayer and the economic fallout – have sought to act in the national interest.

Yet, no one – apart from those who creamed it on the back of the Government guarantee – is happy. The Government is the convenient whipping boy.

It is and that’s why people accusing National of acting in the interests of supporters is tosh.

People who get their money back not only come from all around New Zealand they’ll have a variety of political persuasions and they are far fewer in number than the rest of the populace who are aggrieved. 

There are far more votes to be lost than gained from this.

But when you’re in government you don’t get to pick your fights. You have to deal with what comes up and make decisions based on the best information available.

Sometimes that will be politically popular, much of the time it won’t and this one definitely isn’t.

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