South Canterbury Finance bail out unpalatable
“The messy demise of Alan Hubbard’s finance company has been inevitable because of the way companies such as South Canterbury Finance operate” said Democrats for Social Credit Party Leader Stephnie de Ruyter and Southern Region President Bob Warren in a joint statement issued today.
“Finance companies are not private trading banks: they are fringe financial institutions. They re-cycle, at high speed, the available cash in the system. This means that they are able to offer attractive interest rates to investors then on-lend that money at much higher interest rates, often to those unable to borrow from the trading banks. This is in stark contrast to the way in which trading banks operate.
“When finance company borrowers are unable to honour their loans, trouble follows. The original investor loses out when the finance company in which they have invested their funds is liquidated or goes into receivership.
“And this has been the case with South Canterbury Finance, as with innumerable other finance companies in recent years.
“The DSC does not support the existence of these fringe financial institutions. They are part of a failing debt-based financial system.
“Nor does the DSC support the taxpayer-funded $1.6 billion bailout of SCF. The company’s total assets represent about 1.3 per cent of total farm activity and less than 3 per cent of total farm lending. The DSC suspects that the government’s motivation lies in protecting the global reputation of the New Zealand finance industry rather than a desire to protect “mum and dad” investors.
“However, if the government genuinely believes that it has an obligation to support SCF investors this through the receivership process, a Reserve Bank life-line of credit similar to that made available to the foreign-owned trading banks during the financial crisis would be a more palatable option.
“The DSC contends that New Zealand’s publicly-owned central bank, the Reserve Bank, should have the sole right to issue, allocate, and cancel all new money for and on behalf of New Zealanders. In that way, the future prosperity of our nation is secured.”
Published: September 2010