Financial crisis

The crisis that isn’t

David Farrar unspins the spin over the so-called?manufacturing?crisis:

Labour, Greens and NZ First release their ?report? from their manufactured inquiry into the manufacturing crisis. They specialise in putting out cherry picked data to try and convince people there is a crisis in manufacturing.

To counter that I?m blogging these graphs which are all directly from the Stats NZ Infoshare database and show some key metrics over time, so people can see the actual changes and trends. They are a mixture of positive and negative, but not an indicator of a crisis I would say. In fact all have been improving recently.

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Perhaps they should send some to jail


There is a growing banking scandal unfolding in the UK. Instead of bailing them out all the time shouldn’t we explore putting a few of them in the slammer:

Barclays chief executive Bob Diamond suddenly quit on Tuesday over an interest rate-rigging scandal that threatens to drag in a dozen more major lenders, but suggested the Bank of England had encouraged his bank to manipulate the figures.

“The external pressure placed on Barclays has reached a level that risks damaging the franchise – I cannot let that happen,” said Diamond, 60. The terms of his severance were not announced, though Sky News said the bank would ask Diamond to forfeit almost ?20 million ($39 million) in bonuses.

Politicians and newspapers have zeroed in on the scandal – which revealed macho emails of bankers congratulating each other with offers of champagne for helping to fiddle figures – as an example of a rampant culture of wrongdoing in an industry that stayed afloat with huge taxpayer bailouts.

Barclays released an internal 2008 memo from Diamond, then head of its investment bank, suggesting that the deputy governor of the Bank of England, Paul Tucker, had given Barclays implicit encouragement to massage the interest figures lower during the peak of the financial crisis in order to present a better picture of the bank’s financial position.

According to the memo, Tucker told Diamond he had received calls from senior government officials. “It did not always need to be the case that we appeared as high as we have recently,” Diamond said he had been told.

The Bank of England declined to comment, but analyst Ian Gordon at Investec said: “Based on first inspection it does seem to suggest that Barclays have received a message from the Bank of England which provided, to put it mildly, significant encouragement.

“So they’re maybe trying to share the blame but with justification. It raises a whole bunch of questions, and they’re very serious and they’re for the Bank of England to answer.”

Guarantees finished

The long suffering taxpayer sees a little bit less risk now that the Crown Deposit Guarantee scheme has finished:

Taxpayers have paid out more than $1.9 billion, with the lion’s share going to South Canterbury Finance investors.

Nine finance houses failed under the Crown guarantee. The final cost to taxpayers will be less than the total paid to depositors covered by the scheme, but that depends on how much is recovered from the firms that triggered the guarantee.

The original deposit guarantee was introduced in late 2008 at the height of the global financial crisis, when the world’s banking systems froze up. The government brought in the guarantee as an emergency measure to maintain confidence in the New Zealand banking system.

The original scheme covered deposits of $133b in 72 banks and finance groups. The government ended up on the hook for more than $1.8b, to more than 38,000 depositors in the original scheme.

While South Canterbury was the biggest collapse, the original scheme also bailed out depositors in a handful of failed finance companies, including Allied Nationwide, Mascot Finance and Vision Securities.

That scheme expired in October 2010 and was replaced with a much smaller, extended deposit guarantee, covering seven institutions and $1.9b.