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Posted by Tony Ryburn on November 14, 2008
Have you noticed how America always has to be centre front on the world stage? The Iraq war did the job nicely for quite a while and just when even diehard Americans started tiring of that, they conjured up a financial crisis that started in their banking system and then reverberated throughout their entire economy before engulfing the rest of the world.
Things got seriously out of hand as we are all now painfully aware and America turned to its economic policy advisers to come up with a solution. Unfortunately what they came up with left a lot to be desired.
Their solution was to grab $US700 billion of tax payers’ money and buy bad bank loans. This would have been grossly unfair to taxpayers who were basically being asked to pay megabucks for a load of worthless junk with no compensating upside.
Fortunately the European Union and Britain were alert to this inequity and came up with a much more reasonable, if blindingly obvious solution. If tax payers’ money had to be used to bail banks out it should be used to purchase equity in the bank. That way, long-suffering taxpayers would get a commensurate share of the good stuff as well.
Eventually, the wisdom of this proposal dawned on the Americans and they announced that they would follow the European and British lead. And what happened when they finally got it right? A few billion (or was it trillion?) was promptly wiped off the American share markets! So it’s not just the banks and economic policy advisors in America who seem to have lost the plot.
And the point is? Well, the Americans led us into this mess but, based on their performance to date, we would be foolish to expect them to lead us out.
2 Comments
Comment by Paul Kearns at 4:04 pm on Nov 19, 2008
It seems to me (and I am a NZer) that NZ has been happy to lead itself into its own mess as much as anyone else leading us into it. We have been happy to borrow money from overseas to buy more houses (helped by an obliging fiscal policy) to the point where house price increases and capital gains on properties became absurd and the banks were happy to keep lending to our own set of sub-prime customers.
I know an individual, a beneficiary, with less than 50% equity in a property who was given a 100% mortgage to purchase another property and then a $60K top up for alterations and additions. The second property remains unfinished, there is no money left and the value of the property now is probably worth less than the loan.
So I think we should look at our own voracious appetite for credit and our own willingness to spend more than we earn before we go blaming anyone else for the mess we are now in.
Comment by Tony Ryburn at 6:19 pm on Dec 2, 2008
Paul I certainly agree that the NZ banks have been less than responsible with some of the high LVRs they have sanctioned. Reducing them, as they have done recently, is closing the door after the horse has bolted.
Having said that, NZ banks are in a far sounder position than many of their overseas counterparts – especially in America. NZ tax payers have not had to bail them out as has happened frequently overseas and it’s not likely that they will have to do so in future – touch wood!
My main point is that any recession in NZ will be due more to the economic woes of our trading partners rather than anything we have done.