The problem for Shearer

March 21st, 2013 at 11:00 am by David Farrar

The undisclosed bank account is posing some challenges for , beyond just the transparency issue.

Stuff reports:

Shearer told Fairfax Media yesterday there was no advantage to having the account and there was “nothing special about it”.

Asked what that said about his financial expertise, given low in the US and the exchange rate losses he may have suffered from a rising New Zealand dollar, he shrugged and said: “The bottom line is it is there, and I have nothing more to say about it really.”

Banks today also questioned why Shearer would keep such a large amount of money in an account that paid such low interest – maybe 1.5 per cent – when he could earn more in New Zealand.

Shearer had also disclosed a mortgage in the register, which would charge a higher interest rate than the banks paid on deposits in New York.

“Why doesn’t he transfer some across and pay off his mortgage?” Banks asked.

How an MP arranges his or her personal finances should generally be of no concern to the public – it is a private matter. But when due to a stuff up, you force it into the public arena, people naturally get curious. You just can’t help it.

Now some people have got over-excited and have been saying that Shearer has a conflict of interest with Labour’s policy to spend billions of dollars pushing down the exchange rate, as that would allow him to convert his US dollars into NZ dollars at a higher profit.

I’m sorry, but that’s ridiculous and is the sort of paranoia best left to some of the extremists on the left who likewise allege that John Key was asking questions in Parliament on Tranzrail to help their share price, rather than because he was (then) Opposition Finance Spokesperson.

Labour want to waste billions of dollars intervening in the exchange rate because they think it will be popular, not to help their leader make money on currency transactions.

So I don’t think the public will have a bar of the conspiracy theories.

But what the public do understand is paying down your mortgage. It’s something common to most families. You pay much more on your mortgage than you get in a bank, so you always transfer surplus savings against your mortgage.

And what the public will be wondering, even though it is none of their business, is why would you have several hundred thousand dollars in an US bank account, and not use it to pay down or off your mortgage. I mean no one sensibly wants to pay more interest to your bank than they have to.

The only three answers I can come up with are:

  1. You’re financially incompetent and it never occurred to you.
  2. You’re so well off, that saving thousands or tens of thousands of dollars off your mortgage doesn’t matter in the bigger scheme of things.
  3. There is some other reason to want to keep the money in the offshore account.

Have I missed a significant possibility?

Vernon Small also touches on the political side of the non disclosure:

The blunder shows a slackness and a lack of attention to detail unbecoming a prime minister.

Even having the account – rather than closing it quick-smart when he became leader – is problematic.

What of Labour’s views on economic nationalism? What about investing in local enterprises rather than leaving the money at low interest rates to be invested in the US?

And why not close it and bring it back now? Surely not because he is waiting for the exchange rate to move back in his favour? Mr Shearer, currency speculator?

It isn’t necessary to get overexcited by the ramifications of all this to see the potential for political harm for Labour and Mr Shearer.

By far the worst is that at a stroke he has neutralised attacks he could make, come the 2014 campaign, on John Key’s “brain fades”.

It is not hard to see how they will be turned back on him.

Which is worse: forgetting a swift mention of Kim Dotcom in a briefing by spooks or failing to remember for three years in a row your nest egg tucked away in a New York bank?

Labour had a very obvious campaign around Key having so called brain fades. It is now in tatters.

UPDATE: We have has some useful additional possible explanations. The list now is:

  1. You’re financially incompetent and it never occurred to you.
  2. You’re so well off, that saving thousands or tens of thousands of dollars off your mortgage doesn’t matter in the bigger scheme of things.
  3. Deliberately not paying off the mortgage, so he appears “an everyday bloke”
  4. Is writing the NZ mortgage payments off tax as an investment property
  5. Waiting for the exchange rate to drop, before he moves the money back to NZ
  6. There is some other reason to want to keep the money in the offshore account (US itunes purchases?)
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57 Responses to “The problem for Shearer”

  1. mikemikemikemike (241 comments) says:

    I agree with you here DPF, will you be posting a similar number of posts on the recent discovery of John Banks’s shares in Talent2? It all comes back to the fact that, for the most part; the people we have in Parliament are a bunch of self-interested twats.

    [DPF: It's not recent - the story is six months old was I blogged it at the time]

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  2. dime (8,778 comments) says:

    Hes probably got a 20k mortgage that he keeps with the sole purpose of looking like “an everyday bloke”.

    “unlike john key, i have a mortgage”.

    or, his mortgage is for some tax benefit. running a rental scam of some sort.

    just a couple of options :D

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  3. flipper (3,273 comments) says:

    Is Shearer, through various legal (but in his case silly) means, writing off his NZ mortgage interest payment against tax? May be, just may be, there is more to this than meets the eye, and that is why he has a healthy nest egg in a US bank!

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  4. krazykiwi (9,188 comments) says:

    Has it been confirmed that Shearer has paid tax in this investment, or are we taking him at his word?

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  5. RRM (8,994 comments) says:

    There must be some dirt here somewhere!

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  6. joe bloggs (126 comments) says:

    I love the smell of napalm in the morning – especially when it signals the collapse of five years of attack-dog mongrel politics, directed by Labour at John Key

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  7. hubbers (204 comments) says:

    I not judging him yet but I admit I am intrigued! This doesn’t add up.

    Also why did this come up now? Did he raise the issue or was his hand forced?

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  8. Pongo (356 comments) says:

    If this was Key the media would be screaming for the balance in the account. I go with the having a mortgage to look like an ordinary kiwi although the tax deductibility angle is interesting.
    I do wonder if he has declared this to IRD though or perhaps he got a new accountant/advisor who told him he better do a voluntary declaration to IRD and pay the tax he should have paid for the last four plus years and that’s why he added it to his pecunary declaration.

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  9. Pete George (21,826 comments) says:

    There’s a possible explanation for keeping a low interest overseas account instead of paying off a higher interest mortgage – waitiing for a more favourable exchange rate. The exchange rate swung the wrong way making the loss greater, he may be waiting for it to come back to recover that loss and perhaps hopes it will more than covere the difference in interest rates.

    I agree that this almost certainly has nothing to do with Labour’s exchange rate policy proposals, that looks simply like pandering to votes, probably knowing how impractical and ineffective it would actually be.

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  10. Redbaiter (6,481 comments) says:

    “people naturally get curious. You just can’t help it.”

    I’m not curious. Not one bit.

    But you are right about idiots making allegations re manipulation of the exchange rate. Some dick heads will do anything to drive up the circulation of their pathetic little rags.

    Also on Whale yesterday there was a story alleging Shearer was cheating on his wife, and such a cowardly smear was excused on the basis it was (purportedly) satire.

    Those defending it showed their lack of any kind of moral base by completely missing the point of my complaint, in that an allegation of marital infidelity was just a step too far.

    The so called right in this country can’t criticise the left for being lowlife bastards unless they adhere to a higher standard themselves.

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  11. Chris2 (706 comments) says:

    Some people with shaky marriages keep money in off-shore banks.

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  12. Chuck Bird (4,415 comments) says:

    I certainly do not trust Shearer any more than I trust 98% of MPs that have been in Parliament for more than a year or two. I had some money for a number of years in a UK share holding in Royal Dutch Shell. I made on the share price but lost a lot more because of the unforeseen currency loss. I recently sold the share and brought the money back and cut my losses.

    Before I did this I discussed the probably future exchange rate with my share broker. The amount involved was just under $40k.

    If Shearer has around a mil in his offshore account we should have a right to know and make up our own minds.

    Wealthy Chardonnay socialists are the worst for nickel and diming. $100k or more difference in exchange rates is considerably more than that.

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  13. berend (1,602 comments) says:

    Vernon: Surely not because he is waiting for the exchange rate to move back in his favour?

    Remind me of Labour’s policy again, wasn’t it to lower the exchange rate? I suddenly understand why….

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  14. dime (8,778 comments) says:

    “The so called right in this country can’t criticise the left for being lowlife bastards unless they adhere to a higher standard themselves.”

    very true. we should all be like redbaiter – no name calling.

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  15. Cunningham (746 comments) says:

    Haha dime good call!!

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  16. Pete George (21,826 comments) says:

    US$ versus NZ$:

    February 2009 .5151
    February 2010 .6974
    February 2011 .7623
    February 2012 .8343
    February 2013 .8389

    That’s a lot more than the few percent difference between bank deposit interest rates and mortgage rates.

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  17. dime (8,778 comments) says:

    PG – the money has been sitting there for 4 years?

    so this dipshit watched the kiwi dollar get stronger and stronger?

    doesnt look like an exchange rate issue to me.

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  18. Prince (81 comments) says:

    “no one sensibly wants to pay more interest to your bank than they have to”
    Unless you have a renta property, as Shearer does, and you claim the interest against the tax paid on your ‘day job’. Sure he could have got higher interest in an NZ Bank, but then that would not be a good loook for an NZ Labour poli. So you leave it in the US and ‘forget’ to declare it.

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  19. BeaB (1,958 comments) says:

    redbaiter
    The so called right in this country can’t criticise the left for being lowlife bastards unless they adhere to a higher standard themselves.

    Yes we can. I have no problem not being on the high moral ground. Hasn’t done Shearer much good.

    Banks had an interesting suggestion in the fantastic general debate in the House yesterday that Shearer needs to come clean about the origin of the money. So far we are being expected to take his word that he told IRD (without being told when), it was his UN earnings, it is around $100,000.
    Whatever the truth (and he will have to tell us sometime so why not spit it all out now) he comes across now as naive, stupid, financially inept, hypocritical and possibly corrupt.

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  20. Pete George (21,826 comments) says:

    “the money has been sitting there for 4 years? ”

    What we know is that he has had $50k or more since 2009. We don’t know if he has deposited or withdrawn over that time, nor any actual amount.

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  21. DRF (18 comments) says:

    The key factor is the dates, Shearer ‘came home’ in May 2009 according to Wiki. On 1/5/2009 the rate was around 57c, by 1 June it had gone to a tad under 65c and. My guess would be that the money became available after a good part of that jump occurred. Shearer probably held the belief it would drop back under 60c, and has waited for that. Instead the rate has gone fairly steadily upward offering no good point to cash out.

    Consequently he’s sitting on over a 30% exchange loss at the moment.

    The money was always supposed to come home probabaly also explains the initial non-disclosure.

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  22. lastmanstanding (1,154 comments) says:

    IMHO Shearer isnt setting a good example giving that most financial advice is to pay down or pay off your mortgage before getting into savings.

    Fact is a mortgage at say 6% and a tax rate at 33% means that you would have to earn 8% gross on a savings account to equal the paying down of a mortgage.

    I go with the exchange rate proposition in Shearers case. He obviously missed the boat in Feb 2009 given Pete Georges numbers. Maybe he was hoping it would go to 40c as it did around 1999/2000.

    Alas for him I think hes gonna have to wait a long time to see those rates given the US economy is broke and wont/cant be fixed inside the next decade or more and NZ is showing small GDP recovery and with the growing demand for our exports in the developing countries should keep growing.

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  23. Dirty Rat (377 comments) says:

    dime (5,699) Says:
    March 21st, 2013 at 11:10 am
    ”or, his mortgage is for some tax benefit. running a rental scam of some sort.”

    And what would be wrong with that Dime ?

    It certainly increases your ROI and is a common Investment decision to make. If you had a $500,000 property geared at 80%, you would have a more efficient return on your investment ($100,000) than you would if it were 100% debt free ($500,000)

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  24. dime (8,778 comments) says:

    DRF – it was never going back under 60. so what youre saying is hes a moron.

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  25. labrator (1,691 comments) says:

    Pete George is heading in the right direction. If you think that the NZ dollar is artificially high, like Labour & the Greens who want to strong arm it down, then you might consider holding your funds. Hedging is pretty easy to try but hard to be good at. In Feb 2009, $100,000 USD was almost $200,000 kiwi. Now it’s barely $120,000. So how many years does it take to accumulate $80,000 loss in interest? Well that’d depend on the size of his mortgage. The sums can work out to mean he’s not completely mad if he does believe the exchange rate will head south again. Or, he could just have no idea about finances at all.

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  26. dime (8,778 comments) says:

    dirty rat – nothing wrong with it at all!!!

    but might make him a hypocrite…

    oh yeah, email me. i dont know what address you use now. i think one of them goes to spam because you sent me 400 anti-nickelback emails while i was at a wake

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  27. flipper (3,273 comments) says:

    Prince, et al ….

    It is not just his Parliamentary salary. Income from all sources goes into “the pot”, and tax is levied on total income. The rental property means that he is writing off interest, maintenance, insurance, rates, on the rental, but adding in net income, or deducting a net loss.

    Prima facie, here is absolutely no reason for keeping that account open other than exchange rate losses since 2009 when the US$ could have/should have been repatriated at a good rate. Ergo, the real question in relation to the US account is: Is it symptomatic of other US activities? A closer look may be warranted, and US tax/disclosure laws are vastly more media friendly than ours.

    But also consider that in 2009 Shearer was paying tax at the Cullen “rich prick” rate, and it was not until much later that the 33% rate on $70001 came into effect.

    It seemed prudent at the time, but now?
    Oh dear, Mr S. What a pity never mind…. until the next disclosure?

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  28. meh (164 comments) says:

    @chuck bird – I’m interested in your brokers thoughts on the future of the sterling exchange rate (I am in a very similar position to what you described) did he point to you to any publicly available information I might be able to read while I’m trying to make my decision?

    Not looking for financial advice, more just some extra sources of info for me to research.

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  29. OneTrack (1,977 comments) says:

    PG – “What we know is that he has had $50k or more since 2009. We don’t know if he has deposited or withdrawn over that time, nor any actual amount.”

    No, we don’t know the actual amount – it could be anything. nb Somebody surmised a possible value of up to US$3 million the other day. Might be over the top. Might not.

    Shearer should show us the video.

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  30. Hiro Protagonist (16 comments) says:

    “no one sensibly wants to pay more interest to your bank than they have to”
    Unless you have a renta property, as Shearer does, and you claim the interest against the tax paid on your ‘day job’.

    That’s pointless though – Say you pay $50k interest in a year, as a tax loss that means your effective income is reduced by $50k, and you get a refund of ~%16.6k, so you’re down ~$33.3k.

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  31. flipper (3,273 comments) says:

    Further to my last post…

    Depreciation was also deducted until a couple of years ago, and the rules around holiday home rentals (duration, in particular) have now been tightened to the advantage of the Consolidated Fund.

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  32. Paulus (2,298 comments) says:

    meh

    Me too as I have a Stg pension and have lost considerably over recent years, each month, as the UK economy continues to weaken.

    Cannot see improvement though as European socialist and US economies destroy themselves continually, but Wussel thinks that is good to fracking well print money as they have done.

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  33. Chuck Bird (4,415 comments) says:

    @meh

    My broker did not give me anything in writing but made the point that forecasting exchange rates is very hard. I had also discussed the matter with a good friend from the UK and his view was similar that Britain will take a long time to recover.

    I thought in the medium term the exchange rate could go against me further rather than improve. That is why I dedicated to cut my loses and put some of the money into Mighty River.

    I wonder what Shearer’s view of the NZ – UK future exchange rate is? He should have one or is he planing on giving the finance portfolio to Winston or the Greens?

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  34. Sam (493 comments) says:

    I have an issue with this post – its title implies that Shearer only has 1 problem ;)

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  35. Mark (1,302 comments) says:

    Good god this entire post saraeks as a desperate attempt to make something out of nothing much at all. Get a grip people. If he had flouted the ruled there should be an appropriate Sanction. Trying to build some argument around his economic competency based on a 50K bank account is petty + pathetic.

    Labour has enough daft policies to attack not to stoop to this sort of stuff.

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  36. Redbaiter (6,481 comments) says:

    “we should all be like redbaiter – no name calling.”

    Moron- even if that was a relevant point you’d be as guilty as anyone.

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  37. RRM (8,994 comments) says:

    Mark –

    Crosby/Textor just phoned!

    Like Pete Hodgson before him, DPF thinks he has discovered the Neutron Bomb.

    Let him have his fun :-P

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  38. RRM (8,994 comments) says:

    And the man owns a British classic car, for crying out loud. Give him a break.

    You have to have an “offshore” bank account that your wife doesn’t know about, from which to pay the ongoing maintenance and repair costs.

    Shearer’s just gone that step too far and used a literally offshore account…

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  39. meh (164 comments) says:

    thanks Paulus / Chuck, I’ve all but decided to cut losses (was earned (and taxed!) over there when it was 2.8/3:1 exchange rate, doh!) and bring it back already so good to get some other viewpoints as a confirmation that I’m thinking along the right track.

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  40. rangitoto (145 comments) says:

    “”we should all be like redbaiter – no name calling.””

    “Moron- even if that was a relevant point you’d be as guilty as anyone.”

    Redbaiter score an own goal

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  41. Chuck Bird (4,415 comments) says:

    I think even some Labour supporter will not be impressed. I am pleased to see the Herald seems to have let most of the critical comments be published.

    http://www.nzherald.co.nz/opinion/news/article.cfm?c_id=466&objectid=10872575

    http://www.nzherald.co.nz/opinion/news/article.cfm?c_id=466&objectid=10872509

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  42. ross69 (3,645 comments) says:

    is the sort of paranoia best left to some of the extremists on the left who likewise allege that John Key was asking questions in Parliament on Tranzrail to help their share price

    Strange then that Key should sell those shares so quickly after the issue arose. And apparently he sold them at a loss. Great to know this financial genius has all the answers to transform our economy…

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  43. RRM (8,994 comments) says:

    And all those tory meanies keep on saying “you can’t just print money” eh Ross? ;-)

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  44. Redbaiter (6,481 comments) says:

    “Redbaiter score an own goal”

    That is what makes socialism such an easy sell. The country is full of recently educated drooling idiots freshly graduated from socialism/ TOW 101 with comprehension skills that would shame a garden snail.

    Like most people who comment on this blog, of course I would not be able to deny “name calling”, but to suggest this is the equivalent of stating that a man is having an affair with one of his staff is something only someone really desperate to make a point might attempt.

    What you need to wisen up to commie is that “name calling” as you call it is one of the strategies of resistance that must be applied to constant left wing attacks on our language and their attempts to control freedom of expression.

    Fuck em, they’re all commie bastards and I will never shrink from pointing that fact out. But it is never the same as smearing people with false allegations of adultery, or the same as so many of the amoral accusations that are constantly alleged on this blog and others where left wingers hang out.

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  45. David Garrett (5,150 comments) says:

    Did someone say Shearer owns an old Jag? Well, there’s your answer! …God knows what the account had in it before he got the latest lot of rust removed!

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  46. Yoza (1,352 comments) says:

    Yup, Shearer’s gotta go. It’s time he and his little band of neo-liberal apparatchiks shuffled off into oblivion and the Labour Party reverted back to representing those who actually do the labourious tasks.

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  47. labrator (1,691 comments) says:

    @DG no, it’s an MG and an A at that…

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  48. RF (1,132 comments) says:

    Shearer reminds me of an old deaf Aunt who sits in a corner and farts out loud. Other people in the room pretend that shes not there but the smell still lingers.

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  49. lils (3 comments) says:

    Don’t know about Shearer, he comes across as a bit of a scone maker. But his trough snuffling self serving front bench should do us all a favour and self implode.

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  50. lils (3 comments) says:

    Shearer told Fairfax Media yesterday there was no advantage to having the account and there was “nothing special about it”.

    I think he meant to say – I’ve got so much goddamn money I can’t remember where I stashed it all’

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  51. expat (4,048 comments) says:

    aka he wants to keep a US bank account if his foray into NZ politics goes sour and he gets out of dodge back to the UN. But if he said that he wouldnt sound like a patriot.

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  52. itstricky (1,144 comments) says:

    let us sum up this multi-paragraph blog post by the blogger into one sentence: “all those spreading rumors are nosey parkers spreading silly nonsense BUT here’s some MORE rumor and speculation”. Laughable. Is this Women’s Weekly? Did I type the wrong domain? Has it been hacked?

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  53. Nostalgia-NZ (4,697 comments) says:

    This is the Women’s Weekly.
    He should have brought his cash back and taken a big fall in the value of his american dollars, it was the only reasonable thing to do. Besides that being front page on the Woman’s Weekly in a photo playing a guitar could be a political advantage.

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  54. Steve (North Shore) (4,327 comments) says:

    let us sum up this multi-paragraph blog post by the blogger into one sentence: “all those spreading rumors are nosey parkers spreading silly nonsense BUT here’s some MORE rumor and speculation”. Laughable. Is this Women’s Weekly? Did I type the wrong domain? Has it been hacked?

    This is Shearer going for the sympathy vote at the next Election, and yes it will be in the Womens’ Weekly and all of the other bleedin heart mags – playing to the females and metrosexuals who read it. Just watch Shearer start with the “My whole Family was attacked for something I just forgot”
    Cork Soaker

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  55. Nostalgia-NZ (4,697 comments) says:

    He didn’t forget though. On the one hand he declared the money to IRD, but not in his parliamentary declaration. For all intents and purposes at this time, he wasn’t found out, he revealed the omission. It might take another form later if something else is revealed but at the moment he omitted the details for some unknown reason, then later revealed them under his own volition. A clue that the nats are not exactly confident of their ground is that attack person Mr Banks was set the task, either in an attempt to redeem himself and therefore make himself relevant or because the picture isn’t so clear that critics might be walking into one here.

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  56. Joseph Carpenter (210 comments) says:

    I wonder if Shearer came forward voluntarily on this because he realizes the implications of National’s Information Sharing bill they’re pushing through to become law shortly. In particularly the specific parts that allow government ministers to release all your personal IRD information purely at their whim – bet you thought your IRD and other government information was strictly confidential (obviously not with ACC) – well it won’t be much longer.

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  57. dishy (199 comments) says:

    Q: Who cares whether Shearer has one mortgage or one hundred mortgages?
    A: Nobody who understands that, contrary to popular belief and comment (and contrary to the game of Monopoly) a mortgage is a security instrument that can exist with or without debt – just as debt can exist with or without a mortgage. Borrowers repay loans, not mortgages.

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