Worlds most hated man: Bill Clinton

His romance with Monica Lewinsky was merely a stain on a blue dress and it caused the media to go into a frenzy.

The man primarily responsible for the worlds current financial mess is only rated a mention in the media these days because of his wife and her dalliances in the political world this year.

His dumb-arse Democrat mates from the 1990s are also high on the hit-list, they supported and advised him to pass legislation to allow deadbeat borrowers to suck on taxpayer guaranteed moola just so they could live in houses that they could never realistically afford.

Time to root him out from whatever bed he is currently sleeping in and put the blame where it lies-squarely on crooked Bill's shoulders.

c Political Animal 2008

Free Market to Pollies: We dont want you!

The meltdown of world financial markets has been headlined in the news to the max over the last couple of weeks and the prequel to it has been simmering for more than a year.

Massive collapses of Sub Prime related lenders like Merrill Lynch, Lehman Brothers, Bear Sterns and a whole host of other major lenders have bitten the dust. Some have been "rescued" by the US Fed and some have simply died a natural death. They took the risk, so they should therefore die by their own sword.

Unfortunately these lenders are not being allowed to die a natural death. Uncle Sam is getting involved, in a big way, and that will be a big problem sometime in the future.

Much finger pointing from the left of the political sphere that the "failure of true capitalism" or "the free market" is the fault of the free marketeers and their greed and it just goes to show that capitalism doesn't work.

That is rubbish of course and nothing could be further from the truth.

Capitalism or the free market in its current form hasn't been allowed to be free from interference from Governments the world over, and as we scramble to yet another taxpayer bailout of private investors and publicly listed companies we see the same sort of interference that has brought the whole credit market down, begin all over again.

The facts are that bad lending was forced on lenders by Congress back in the 1980s:

Congress set up processes (Research the Community Redevelopment Act) whereby community activist groups and organizers could effectively stop a bank's efforts to grow if that bank didn't make loans to unqualified borrowers.

Real Clear Politics

This has led to the current and inevitable blow out that we are now experiencing.

Rather unsurprisingly two of the first lenders to go were the State backed Fannie and Freddie, now laughingly called Feddy because it is now fully State owned.

Ironically, Fannie Mae was set up in the 1930s as a State antidote to the crazy lending of the 1920s, the stockmarket crash in 1929 and the depression of the 1930s to lend money to the "secondary mortgage market" (sounds familiar doesn't it). Freddie Mac was set up by the Federal Government in the 1970s when Fannie was privatised but Fannie still had Federal input.

Even more bizarrely, New Zealand politicians from the left are contemplating setting up our own sub prime mess by allowing people who cant afford to borrow to buy houses the ability to borrow money with the help from the State.

Will we ever learn?

The free market must be left to function perfectly as it would if left alone. That is, those that take risks either benefit from those risks or lose their shirts, that is how a free market truly works.

Until politicians keep their sticky little interfering fingers out of that free market we will continue to experience economic meltdowns of the wonderful variety that we are currently grasping to fully understand.

I can hardly wait for the "carbon trading" collapse.


Related Share Investor Reading

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Of tulip bulbs and tooth fairies
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Discuss this Topic @ Share Investor Forum


Buy Toughen Up: What I've Learned About Surviving Tough Times



Toughen Up - Fishpond.co.nz


c Share Investor 2008

Will the stalactites hold?

The financial meltdown has been making a mess on stock exchange floors and business boardrooms globally but nothing that has been tried so far seems to be freezing the tide of red ink.

Since the financial crises that kicked off in August 2007 it has beset markets and financial institutions all over the world, stock markets have lurched upwards, downwards and sideways since and seemingly at the whim of the market regulators in the United States.

The next collapse of a Bear Stearns, Northern Rock, Lehman Brothers or another New Zealand finance company seems just around the corner-if Bear Sterns Fannie and Freddie and Lehman Brothers have gone the way of the dodo, you can bet other Wall Street firms who have been drinking at the easy credit trough and lending to others whose assets are of dubious value are going to head the same way.

Last week a massive bombshell, one that has been on the brink for the best part of seven years, Fannie Mae and Freddie Mac finally collapse and the US Federal Government will pile 100s of billions of taxpayer dollars into it hoping to stem the flow.

All this has had a chilling effect on the credit market, the lifeblood of business, between financial institutions and other business and between individuals.

Heads of powerful investment banks have still not come clean about their exposure to the sub-prime derivatives market to in what Warren Buffett has called "financial weapons of mass destruction" and we continue to see new revelations everyday about previous cavalier attitudes to lending, and borrowing, coming home to roost.

The value of these derivatives in the Fannie and Freddie collapse are relevant to the bleak outlook for world markets and the global economy and likewise the recent Lehman Brothers meltdown.

Optimism is well overrated in this market because the bubble of optimism keeps getting pricked.

Even Warren Buffett's assurances that the Federal Reserve did the right thing bailing out Fannie and Freddie had me worried.

It seems a tad self serving to me on his part considering he usually keeps his mouth shut and claims not to like the limelight-seems to me he has been popping up everywhere in extended interviews, ball games, TV shows and the like over the last year or so, most uncharacteristic of him and his style in the past.

My feeling is that investors are set for at least another year of this cloak and dagger stuff.

The market has so far been propped up by taxpayers around the globe-directly to help ailing banks and indirectly to allow cheaper credit to flow through financial markets and ease the pressure on doing normal business.

There is no sign yet that this approach has or will work in the future, having said that, the vast increases in new and different financial instruments in the 1990s and early 2000s and the resultant surge in speculation and bull runs in sharemarkets took time to reach their nadir.

Perhaps now that the bubble has burst it will take just as long to recover from the hangover than the credit binge party itself.


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Global Market Meltdown: What is Warren Buffett doing?
Credit crunch a blessing is disguise

Discuss this topic @ Share Investor Forum







c Share Investor 2008

Good opportunities exist for buying in current stockmarket

Everyday my portfolio takes another downwards trajectory. How about yours? Economic conditions in New Zealand and globally don't look good for the short to medium term.

There are more losses to hit markets in relation to the Sub Prime fallout, that initially revealed itself almost a year ago and the losses that have been crystalized in balance sheets around the world have had the consequent affect on credit markets, economic confidence and outlook. Future sub-prime losses will clearly continue this trend.

The added pressure of spiraling oil, food prices and every other good and service has left consumers pockets closed for business and those businesses are going to suffer as we all continue to prune costs.

Share prices have been reflecting this for more than six months but now we are set for more stockmarket revaluations as the economic gloom prepares to make itself at home.

Never fear though!

If like me you have been prepared for this you would have been squirreling away money while you could in anticipation of harder times then great. Some of our listed companies have hopefully been doing the same, unlike our present administration, and this is going to put you and them in good stead for a slow down.

It looks very likely that our stockmarket will be breaching the 3000 mark sometime this year and with that comes opportunity for buying.

The biggest opportunity for good wealth creation in the long term I would think would be US dollar sensitive stocks, all of which have been hammered over the last year because of the relative weakness of the US dollar.

It looks like the tide has turned for our dollar, with mutterings from Allan Bollard of interest rate cuts later in 2008 and the Fed talking up US interest rates.

Rakon[RAK.NZ], Fisher and Paykel Healthcare Ltd [FPH.NZ], Mainfreight Ltd[MFT.NZ], Sanford Ltd[SAN.NZ], Delegats Ltd[DLG.NZ], Pumpkin Patch Ltd[PPL.NZ] and Fletcher Building Ltd[FBU.NZ] will all benefit from the falling exchange rate while many of these companies are ready benefiting from the lower NZ/AU dollar cross, joined by the likes of Sky City Entertainment Group Ltd[SKC.NZ], Telecom NZ Ltd[TEL.NZ] and Michael Hill International[MHI.NZ] which have substantial operations in the West Island, Australia.

The biggest star that will benefit from this, which I conveniently hold, is Fisher and Paykel Health.

The company has profit sensitivity of approximately NZ$2.5 million, per one percentage point change in the value of the NZ dollar and as our exchange rate is off its recent high of .82c and is currently less than .76c then there is significant upside as the dollar retreats towards its historical levels of below 60c to the US dollar.

Its sales are also increasing strongly, so its upside in the medium to long term looks very good.

Apart from the opportunities related to a falling NZ currency there are also some very good companies ripe for bargain hunters flush with cash from better days and investors would be mad not to do some spending instead of getting those brokers and financial advisors wealthier by selling stocks and getting into gold, commodities, fixed interest, cash or some other over valued asset class.

Disc I own MFT, FPH, SKC, MHI, PPL, and FBU shares in the Share Investor Portfolio


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From Fishpond.co.nz - Buy Toughen Up: What I've Learned About Surviving Tough Times



Toughen Up - Fishpond.co.nz



c Share Investor 2008

Dont dare use the "D" word

The announcement on March 31 (US time) that secretary Paulson is going to regulate the United State's financial markets with changes to it not seen since the Great Depression leaves me with a thought that has been running rat wheels in my mind ever since the current "Credit Crunch" kicked off.

Midway through last year, the Fed began sticking its filthy little hands in dikes all across the financial backbone of the USA by propping up institutions who had lent too much money to those who now cannot pay and to keep the wheels of commerce greased by trying to increase liquidity in the credit market-so we can do business with each other.

Now I am skeptical at the best of times as to State involvement in anything, let alone interfering in capital markets and don't have the foggiest whether the announcement by Paulson is going to change anything in the future at all.



Latest on global financial fallout

German watchdog eyes $600 bln global bank losses: report Reuters
Overhaul of Wall Street regulation doesn't address current crisis Int' Herald Tribune
International Financial Panel Urges Bank Disclosures on Risk Exposure Wall Street Journal
G7 to press big banks to reveal extent of credit crunch losses Times Online
US prepares to give Fed sweeping oversight powers Taipei Times
Ghosts of the Great Depression Business Spectator
US Fed to be grilled over massive support to financial system MercoPress
World Bank cuts East Asia growth forecast Channel News Asia
East Asia Economies Pressed by Inflation The Associated Press

The 1933 changes didn't stop the bear market in the 1970s, it didn't stop the sharemarket crash of 1987 or the tech bubble bursting in 2000 or the current credit crisis because of dodgy lending and investment practices related to that lending.

The interventions by the Fed and its global equivalents, to shore up credit liquidity is the main rat on the wheel in my mind.

What have these interventions stopped?

One can only speculate but one can do that with a largish amount of surety.

During the Great Depression, when faith in financial markets at the time was at an all time low there simply wasn't any intervention by the State apparatus to ameliorate what happened on that infamous day in 1929 when Wall Street threw a woopsey and capitalism jumped out of tall buildings in the financial districts around New York and around the world.

Have interventions in financial markets by State backed funds globally stopped some sort of 2008 crash from happening?

Probably, but not to the extent of 1929, but it is clear that it would have been a crash of some serious nature had there not been intervention.

Another question I have running through my head is, how long will the squillions of taxpayer dollars pumped into the economy stave off the inevitability of a bigger blowout?

That is harder to answer. In order to know better one would have to know the losses involved in the Sub prime loans and associated sub prime bonds, and we are no closer to knowing that than knowing if Hillary Clinton is going to be the Democratic Party leader or if Barry Obama still loves his preacher.

The vexed question of the massive derivatives market also looms in the minds of investors:

Large amounts of risk, particularly credit risk, have become concentrated in the hands of relatively few derivatives dealers, who in addition trade extensively with one another. The troubles of one could quickly infect the others. On top of that, these dealers are owed huge amounts by nondealer counterparties. Some of these counterparties, as I’ve mentioned, are linked in ways that could cause them to contemporaneously run into a problem because of a single event (such as the implosion of the telecom industry or the precipitous decline in the value of merchant power projects). Linkage, when it suddenly surfaces, can trigger serious systemic problems.

"Derivatives are financial weapons of mass destruction. The dangers are now latent--but they could be lethal".

[Warren Buffett 2003]


Warren Buffett aside, I don't think anyone fancies the Fed's chances of shoring up the derivatives market should the dominoes start to topple.



Warren Buffett has always
feared the massive derivatives
market.

What is clear is this scenario has at least the rest of the year to fully play out and further State intervention should be carefully applied only if is really going to work and not because the Fed needs to be seen to be doing something.

Hold onto those gold bars and keep the cash under the mattress, you just might need them.


Essential related reading from Share Investor

The Global Economy looks bad now? But wait there's more
Global credit squeeze: There is no free lunch
Current Credit crunch a blessing in disguise
Lenders must come clean over losses to restore faith in credit markets
Watch for dead cats bouncing
Global Market Meltdown: I can smell the fear from here
Warren Buffett's The Intelligent Investor
Global Market's dropping and your portfolio
Global Market Meltdown: What is Warren Buffett doing?
A sensible approach to global market volatility

Visit Everything Warren Buffett-for everything Warren Buffett

C Share Investor 2008

The Global Economy looks bad now? But wait there's more

JPMorgan scoops up troubled Bear 4:56am: The deal values Bear Stearns at just $2 a share. Regulators hope purchase will stave off wider chaos in financial markets. more

The Bear Stearns fire sale reveals the iceberg underneath the tip of current disclosed sub-prime losses.

Everyone is talking about it and I have written about it frequently for more than a year. The contagion from the reckless lending of the last 10 years still has time to play out its course.

Emergency rate cuts on Sunday(US time) in the United States and talk of another one on Monday 17, of perhaps 100 basis points, will do little to restore the faith in credit markets, housing, business, the stockmarket and every other sort of financial instrument that is traded, with the possible exceptions of some commodities and minerals.

In New Zealand a story out today shows the high exposure our banks have to our ever decreasing housing market and along with higher government spending promised by the Labour government and a whole host of other price increases, interest rates are clearly going to skyrocket.

Things are looking grim here but in the United States, where it all began, they are suffering worse than anyone else. High house foreclosures, defaults on loans and increasing unemployment are front page stories. One doesn't have to be Warren Buffett to figure out that America is already in recession. The official confirmation of two consecutive quarters of GDP stagnation will only be a matter of course when it is announced.

The real question is, how bad is it going to get in the US and how much is it going to affect us in New Zealand and other parts of the world?

I'm not an expert in global economics but do have a keen economic grounding and I think things in the US are going to get alot worse. We still haven't seen the full extent of losses that banks and other financial institutions have been hit with, and those losses will have to be accounted for somewhere in the US economy.

The selling of Bear Sterns to JP Morgan Chase for $2 a share is a good indicator of more financial institutions sitting on bigger than disclosed losses. The balance sheet of BS, who incidentally survived the Great Depression, must be grim indeed.

The impact on other countries is going to be felt more than it is now because these things take time to filter down. Of course immediate impacts on currency values, world sharemarkets etc are felt quickly but longer term impacts, like even higher interest rates oil prices and goods and services.

Some economists talk of a "disconnect" of Asian economies from the still dominant US beast but that really isn't probable to me because countries like China, India and Japan still rely on a strong United States to survive. Economic self sufficiency in Asia is still a decade or so away.

A key sign of a loss of faith in the global economy will be seen when the US stockmarket opens in a few hours time.

If another interest rate cut is announced by the Fed and it is a big one, one should expect a rise in the DOW. Having said that, the fact that such a large cut is being proposed will probably mean the market will rightly look at this scenario as a good reason to dump their shares.

The uncertainty will have investors hitting the sell button.

The feeling I have in this part of the world is that investors have already started to panic. The New Zealand market was down by 2% and Australia followed with a 2.5% drop. Asian markets, as usual in times of turmoil, were hit harder. Over a broad range of markets in Asia they were down around 4% on average.

Whatever happens to the global economy in the coming days, weeks, and months, you can be sure it will be volatile, fraught with emotional writing from people like me and bad for the back pocket.

It will however, be very interesting.


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Buy new: $13.72 / Used from: $11.46
Usually ships in 24 hours


c Share Investor 2008 & 2009

State backed sub prime mortgages in New Zealand a recipe for disaster

If large banking institutions like Countrywide, Citibank &
Bank of America are affected by todays sub prime mess why
is the New Zealand Labour Government about to embark on
our own sub prime fallout in the future by lending taxpayer
money to individuals to buy houses who wont be able to pay
back the loans?

"government is not the solution to our problem; government is the problem".

Ronald Reagan, Inaugural Address
West Front of the U.S. Capitol
January 20, 1981.


The fuss made last Tuesday over Helen Clark's "state of the nation" address by politicians on the left and their supporters has left me dazed and confused.

There was much talk of the "problems" that must be solved post a 2008 election and also that the Labour Government had worked hard for the last 8 and a half years to solve many of the problems that faced the nation over that time.

Surely if the hard work had been truly fruitful we really wouldn’t be facing any major problems now?

That’s where I got confused, the dazed part came after Helen Clark’s address but more about that below.

Ronnie was and is right, Governments, of all colours, make problems and then politicise these problems in the media when they offer to “fix” them.

Labour though has been the biggest problem maker in this small countries political history.

The most public example of that lately has been the anti graffiti legislation. Something made worse by Labour’s casual attitude to law enforcement and socialist family centered legislation like family group conferences instead of jail time or appropriate punishment are the problem.

The legislation is actually there already, but it is election year and Labour are merely grandstanding for votes.

You can pick through any of the huge problems that this Motley Crewe have either engineered or been responsible for and it is quite clear that Labour cannot “fix” what it has fucked up.

From the crippled health “service”, crumbling education standards, record high crime figures to record numbers of New Zealanders on welfare.

I would like to dig deeper on a future “fix” that Labour seem stuck on.

In Clark’s verbose and unsustainable “address to the nation”, she mentioned the word “sustainable” more than a dozen times, she made a feature of her governments efforts to fix the “housing unaffordability crisis”, whatever the hell that means.

The fact is, houses have always been “unaffordable” but in this day and age it seems unacceptable to those on the left for people to start at the bottom, earn their own money, save for a house and then buy one themselves. Logical isn’t it but it worked for us in a previous less politically correct life.

"The nine most terrifying words in the English language are, 'I'm from the government and I'm here to help".

Ronald Reagan, 1984

Don't worry citizens, Labour is going to help you buy a house, providing taxpayer funded loans or “shared equity” subsidized hand outs to those on “low wages”, in most cases up to 100% of the value of the house!

To fix the “housing unaffordability crises” Labour also propose to build more cheap taxpayer funded homes in increased densities, you know, like the ones they built in the 1930s onwards, the ones that still breed poverty, crime, dependence and hopelessness. Most sensible individuals call those housing developments slums.

Little boxes made of "ticky tacky" should remain as
part of a song or on the monopoly board, not causing
repeated social decay generation infinitum as State
housing always turns out to be.

They will go further than that though. They will force local government to get involved and local housing commissions set up, ones that in the United Kingdom in the past were filled with corruption and favouritism and led to the current social mess they are having. Tower blocks of hell filled with poor dependant UK nationals and disaffected immigrants, some with Koranic scythes to grind.

It’s a fact that slums don’t and never have worked. Labour propose to follow this well worn path of failure, evidenced here and in every other nation. If they did work we wouldn't still have them decades after they were introduced.

You want to know the really funny thing about Labour’s ultimate “solution” to this thing they call a “home unaffordability crisis”?

They helped cause it!

Record high taxes have burdened lower paid workers with low take home wages, while those same record high taxes have funded a government that have spent the proceeds recklessly on social interference and handouts to those undeserved of taxpayer largesse.

Even a third form economics student at the bottom of a class full of deaf and dumb mutes could tell Michael Cullen that his spending was inflationary.

That reckless spending has led to record high mortgage rates, the highest in the “developed world” and increases in local rates, petrol and food prices and all the essentials of life.

Not much left over for mortgage repayments huh Helen and Mike?

I haven even got to the main thrust of this piece though(I’m sure many of you lefties wish you hadn’t read this far-I hope you can grasp what it is I am saying)

By attempting to “fix” this self made “problem” Labour will set up the economy for a fall, one such fall that is having repercussions on us at this present moment.

I’m talking about the sub-prime mess in the United States.

The sub prime fallout was basically caused by defaults in fringe private institutions and Freddie Mac and Fannie May, two state run lenders, lending money to those borrowers in the USA that wouldn’t normally be able to get funding to buy a house.

Surprise, surprise, they eventually couldn’t pay back the loans. Labour propose to State back these same sorts of loans because they are being politically and philosophically motivated to get another 3 years at plundering the treasury benches.

If we in New Zealand are unlucky to get this vermin voted back in again will the same government propose to “fix” our own sub prime fallout when it inevitably happens here and will we forget that they caused the problem in the first place?

I question the veracity and honesty of Labour’s position on this and urge them to seriously rethink a socialist backed dream of all of us owning a state funded house. I question a New Zealand mainstream media, especially the business and finance sector, that would let this lunatic idea go unscrutinised and unaddressed.

Here at Share Investor and Political Animal , we see our job as that of informing readers of things that are not ordinarily looked at or maybe looked at in a deeper or alternative way. A commonsense approach if you like.

Labour’s intention to foist this future “sub prime” housing fallout on Kiwis should be a major concern to all sectors of the economy, from business, to the higher and lower wage earners. It will impact on all of us if their plan gets snowballing.

The push into the Sub Prime lending market in New
Zealand will affect more than house prices, the economy
will be seriously affected when the fallout comes, and it will.

Look around now. The US sub prime fallout is already negatively affecting your share portfolio, your mortgage rates and is having a serious impact on business lending and therefore business and economic growth.

Imagine if you will the direct impact it will have on a small fragile economy like New Zealand.

The word serious would be understatement.

“The best minds are not in government. If any were, business would hire them away”.

“Don't be afraid to see what you see”.

Ronald Reagan

Related Political Animal and Share Investor reading

Share Investor Blog

Current credit crunch a blessing in disguise
What happened to risk?
Share Investor Friday free for all: Edition 12 - 2nd story "I'll be baacck"

Political Animal Blog

Labour's Socialist Peril
Labour's State control out of control
Pointing fingers in the playground


c Political Animal & Share Investor 2008

What happened to risk?

What happened to risk?

A question no doubt in some of my readers minds.

In relation to financial markets, investing and business it seems to be an archaic concept only seen as a entry in the Oxford dictionary.

The market turmoil that started with the Sub Prime fallout and associated credit crunch, several months ago, has highlighted what has been going on for many years, those that take risks in business and investing no longer seem to suffer consequences when the risk that they took doesn't quite give the expected payoff.

After global State bailouts of banks with "liquidity" problems and talk of sub prime borrowers being bailed out or their bad decisions to buy houses they could ill afford, the latest avoidance of risk involves the insurance companies that insured sub prime bonds against collapse.

For goodness sake you want to remove risk from insurance?

Let me borrow and modify a classic Tom Cruise flick, insurance is risky business!! Please don't sue me Tom.

The talk of a bailout last week led to US markets doing a Lazarus and finishing up by around 2.5%.

It ain't a positive investors, its a pure unadulterated negative.

The investing world isn't the only place risk and consequences has been removed from life, Governments worldwide have been trying to do this for years.

In New Zealand Helen Clark, and her merry bunch of Labour Party socialist risk aversionists have recently passed a law to allow citizens to easily declare bankruptcy and come out of it without paying back debtors. This is linked to student loans that don't attract interest and therefore students have no incentive to pay them back.

All risk taken and no consequences for that risk.

Over the last 9 years Aunty Helen has bubbled wrapped an entire nation so much so that the risk that she talked about when she gave a eulogy at Sir Edmund Hillary's Funeral has almost been completely removed.

When we remove consequences for risk though, we increase the risk that mistakes will continue to occur.

Those in the financial industry being bailed out, institutionally and individually are simply going to continue to do what they have done if there are no brakes on their behaviour.

The looming danger is ironically low interest rates, what led us into the whole sub prime fallout and reckless borrowing and lending in the first place.

Record low rates after 9-11 led to a frenzy of cheap credit and with similar low rates coming down the pipeline one doesn't have to be a Warren Buffett to figure out that this is not such a good thing at all.



Related Political Animal Blog Reading

Labour's Socialist Peril

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Leaders must come clean over losses
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C Share Investor & Political Animal 2008

What happened to risk?

What happened to risk?

A question no doubt in some of my readers minds.

In relation to financial markets, investing and business it seems to be an archaic concept only seen as a entry in the Oxford dictionary.

The market turmoil that started with the Sub Prime fallout and associated credit crunch, several months ago, has highlighted what has been going on for many years, those that take risks in business and investing no longer seem to suffer consequences when the risk that they took doesn't quite give the expected payoff.

After global State bailouts of banks with "liquidity" problems and talk of sub prime borrowers being bailed out or their bad decisions to buy houses they could ill afford, the latest avoidance of risk involves the insurance companies that insured sub prime bonds against collapse.

For goodness sake you want to remove risk from insurance?

Let me borrow and modify a classic Tom Cruise flick, insurance is risky business!! Please don't sue me Tom.

The talk of a bailout last week led to US markets doing a Lazarus and finishing up by around 2.5%.

It ain't a positive investors, its a pure unadulterated negative.

The investing world isn't the only place risk and consequences has been removed from life, Governments worldwide have been trying to do this for years.

In New Zealand Helen Clark, and her merry bunch of Labour Party socialist risk aversionists have recently passed a law to allow citizens to easily declare bankruptcy and come out of it without paying back debtors. This is linked to student loans that don't attract interest and therefore students have no incentive to pay them back.

All risk taken and no consequences for that risk.

Over the last 9 years Aunty Helen has bubbled wrapped an entire nation so much so that the risk that she talked about when she gave a eulogy at Sir Edmund Hillary's Funeral has almost been completely removed.

When we remove consequences for risk though, we increase the risk that mistakes will continue to occur.

Those in the financial industry being bailed out, institutionally and individually are simply going to continue to do what they have done if there are no brakes on their behaviour.

The looming danger is ironically low interest rates, what led us into the whole sub prime fallout and reckless borrowing and lending in the first place.

Record low rates after 9-11 led to a frenzy of cheap credit and with similar low rates coming down the pipeline one doesn't have to be a Warren Buffett to figure out that this is not such a good thing at all.


Related Share Investor Blog Reading

Leaders must come clean over losses
Credit Crunch a blessing in disguise
Global Credit Squeeze: There is no free lunch


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Labour's Socialist Peril


C Share Investor 2008

Leaders must come clean over losses to restore trust in credit markets

The current market turmoil seems more a reaction to uncertainty over the scope of the sub prime losses and the attendant credit crunch rather certainty over how bad it really is.

Those with the knowledge over just how much the losses are not telling the general investing public and may I be so bold to suggest that they are not telling our political masters either and if they have then our politicians are not telling all lest they panic the sheep and cause some sort of financial stampede.

To be fair the losses would have to be in the trillions to have material serious effects on financial markets and economies but the uncertainty over losses seems to have done more damage than the realities over an accurate amount.

The uncertainty has dented the all important credit sector of the economy. A sector that relies on trust, full disclosure and the knowledge that with all things known to the lender he can fork over the credit knowing he is more than likely to get his money back.

It is the essence of how business and economies run.

This trust simply doesn’t freely exist anymore and will take a complete clean out of the sub prime losses and then time to restore the much needed trust that this all important part of the business world needs.

Until then, business growth will slow, economies likewise and the mere fact that the trust isn’t there will apply the hand brakes to just about everything that needs credit applied to it. That is most of the worlds’ economy and that is why this “credit crunch” has been talked about so much.

Just a rider to the above though. If losses are in the multi trillions then the psychological trust issue that I have discussed over lending to others will be matched by hard facts that some real money has actually been lost.

The impact of that will be hard to measure but clearly it will be serious.

Related Share Investor Reading

Global credit squeeze: There is no free lunch
Current Credit crunch a blessing in disguise
Lenders must come clean over losses to restore faith in credit markets
Watch for dead cats bouncing
Global Market Meltdown: I can smell the fear from here
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The Crunch: Uncovering the Truth Behind the Great Credit Scandal by Alex Brummer
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c Share Investor 2007

Current credit crunch a blessing in disguise

The current credit crunch could turn out to be a blessing in disguise.

With the private equity boom earlier this year we saw cheap money being used to buy public companies at hugely over inflated values and it looked like it was going to escalate to the point of explosion and huge economic destruction looked certain.

This fallout was gazumped by the sub prime blowout where lunatic lending institutions lent money to private individuals for houses, cars and other goods and surprise surprise they couldn't pay their loans back.



The effect of the latter scenario though is the same outcome that would have happened had the private equity boys been allowed to continue to borrow money from the drunken sailors that were lending it to them- the credit market is very tight and bankers don't trust anyone all of a sudden.

Credit is tight right now, it has slowed down US M and A activity, the housing sector and investment in business expansion and will have further downstream effects as time wears on.

In New Zealand we have seen questions over our own finance companies going bust, 13 in the last 24 months or so and with more to come. They lent money to questionable property developments and car and chattel purchases and have cost a collective NZ$1.5 billion so far.

A major takeover of a large New Zealand company, Sky City Entertainment, is in peril because a couple of the interested private equity partners are having trouble raising cheap credit to purchase the casino and entertainment company.

What is the blessing?

Well, all this recklessness, which the financial world seems to like to go through with monotonous regularity, has put a brake on stupidity and seems to have focused the minds of lenders and borrowers.

Unfortunately the lenders have pulled back way too far and don't want to get their wallets out at all but the overreaction seems a mirror reaction to the gay abandon that they handed out dollars to anyone in a suit in the first instance.

These overreactions always happen and lenders will start to loosen again when trust is back in the market.

The focus from the beginning then, one would hope, that the reasons for lending money in the first case would pass the basic questions from the lender when one asks for credit.

Can he pay it back?

Is his credit history good?

In the case of a business, much the same but with the addition of whether the business makes money and are you paying too much for it.

Simple huh?

Then how come lenders got themselves and as a consequence, us, in this mess in the first place.

Until the next credit cycle of madness!


Disclosure: I own Sky City Shares


C Share Investor 2007