Rutherford exposes Greens financial illiteracy

October 6th, 2013 at 7:00 am by David Farrar

(a former business journalist) writes at Stuff:

With co-leader and economic spokesman Russel Norman overseas this week, it fell on the shoulders of Green Party energy spokesman Gareth Hughes to reveal what he sees as the Government’s latest skulduggery.

With “the stroke of a pen” has been privatised, Hughes said, and not to mums and dads, but to foreign banks.

But what has really happened:

Hughes based his claim on a Beehive announcement that banks which lent hundreds of millions to Solid Energy were converting $75m of loans into “non-voting redeemable preference shares” as part of a rescue deal.

Suddenly at least 14 per cent of the company was owned by four Australian banks, Hughes reasoned, putting “privileged, powerful banking interests ahead of New Zealanders”.

For a start this overlooked that a New Zealand building society, TSB, also loaned Solid Energy tens of millions of dollars and was facing the prospect of losses, a detail made public months ago.

That aside, even though the banks are technically acquiring equity in Solid Energy, the lack of insight as to who was on the receiving end of the deal was striking.

Since revealing the scale of Solid Energy’s problems in February, with debt spiralling to near $400m, Finance Minister Bill English has promised those who funded its ill-fated expansion would not get off scot-free.

The negotiations dragged on for months, and now we know why.

The Government is about to mete out the kind of treatment the seem to wish they could hand out to big business, and the banks are signing up only because the alternative is writing off the debt entirely.

Yes, the Crown is injecting $25m cash into Solid Energy, but for every dollar it is putting up, the lenders face losing three.

The banks are not getting any sort of reward or return. They are in fact taking a big hit.

What do the banks get in return? Shares which will never be worth more than the original amount – Solid Energy can buy the stock back at any time at face value.

It is unclear whether Solid Energy has any motivation to buy the stock back, ever, but certainly it won’t do so before it pays off all or most of the rest of the hundreds of millions of dollars of debt it still carries.

Even if coal prices recover, that will take years. During that period the value of the equity will evaporate through inflation and the lost opportunity to earn interest.

Worst of all (for the banks) is that although English has signed off on fresh loans worth at least $100m, in return he takes security over all of Solid Energy’s assets.

Looks like a very good commercial negotiation from the Government, doing its best to protect taxpayers. As I said, the real shame is that Solid Energy wasn’tt sold off years ago. The next time someone claims the Government must own these commercial companies, think of Solid Energy.

In terms of repayment, the banks’ “equity” stands somewhere near the contractor who cleans the windows at company headquarters.

If the Green Party really believes that kind of ownership is a kind worth buying, then heaven help the taxpayer when it gets near the purse strings of the Treasury.

Indeed.

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22 Responses to “Rutherford exposes Greens financial illiteracy”

  1. alex Masterley (1,517 comments) says:

    The problem is Mr Hughes doesn’t see the haircut the banks have taken as meaning any thing.
    Mr Hughes wouldn’t recognise commercial reality if it bit him on the backside.

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  2. duggledog (1,558 comments) says:

    ‘Rutherford exposes Greens financial illiteracy’

    What – like it was carefully hidden? Would rather ‘lampoons Greens financial illiteracy’ because even a school kid can see it.

    The Greens should never ever be allowed anywhere near the treasury benches. Or social policy.

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  3. slightlyrighty (2,475 comments) says:

    DPF. While you and I are painfully aware of the lack of nous shown by the greens in this matter, there is enough of a soundbite here to enable them to gain traction among their addled base vote, and that is all they need.

    What we need is a more honest approach from the MSM on these matters. What we have here is a good start, but I would love to see more fisking of opposition claims, especially when it comes to how policies are reported. For example, the furore over LVR’s which seem to have been reported to show that low LVR loans are a thing of the past, when banks still have the ability to do so, but at a far lower level.

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  4. Pete George (23,576 comments) says:

    Is Clint overseas too?

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  5. Ian McK (237 comments) says:

    This is the crap that envious left-wing losers like to hear. It gives them a sense of satisfaction to think someone of means may be financially disadvantaged. I have just fired an arsehole for hammering the shit out of a company car, telling his mates in the pub he got a buzz out of costing me money to fix it. He has gone to ERA to bring an action against me . . . he won’t win.

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  6. Griff (7,730 comments) says:

    The problem is a large percentage of the voting public has no idea or as whacky ones as the greens.
    Look at the proliferation of hockshops and “easy” credit loan sharks.
    Or the screams to fund every hugely expensive medication and procedure in health as well as proliferation of cultural safety Bureaucracy with socalscience academia and experts in moari tikanga.

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  7. Michael (910 comments) says:

    Well, I hope they don’t examine the record of Labour – the last time the Government faced an insolvent SOE in the form of Terralink the then Labour Government solved the problem by placing it in receivership and selling the assets off.

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  8. Kea (12,841 comments) says:

    He has gone to ERA to bring an action against me . . . he won’t win.

    Ian McK, he could win if you have not followed the correct process.

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  9. tas (625 comments) says:

    The greens just have a knee-jerk attack reaction to anything that isn’t the government taking over.

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  10. Griff (7,730 comments) says:

    As we suspected Ian Mcarse pays for arseholes.

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  11. lofty (1,315 comments) says:

    Come on Griff, you are better than that.

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  12. Griff (7,730 comments) says:

    Gave you a uptick lofty.
    The man taints my morning coffee.

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  13. Antarg (38 comments) says:

    I think it’s the entire business community that’s having financial literacy problems.
    If you haven’t searched ‘meet your strawman’ and think yourself financially literate, perhaps you should read up a bit.
    According to this report, corporations representing banks and governments, including ours, were lawfully foreclosed in February. http://wakeup-world.com/2013/02/18/all-corporations-banks-and-governments-lawfully-foreclosed-by-oppt/

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  14. Griff (7,730 comments) says:

    :lol:
    loony fringe.
    Antarg meet your straw man hes in your head.

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  15. Antarg (38 comments) says:

    @Griff Try yourstrawman.com. If there’s anything there you don’t understand, you could try asking a lawyer.

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  16. Redbaiter (8,932 comments) says:

    “The next time someone claims the Government must own these commercial companies, think of Solid Energy.”

    Agree, but how is this different to investing in movies?

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  17. labrator (1,850 comments) says:

    Hughes grew up in Gisborne,[3] and, after attending Gisborne Boys’ High School,[4] studied religious studies, history and politics at Victoria University of Wellington.[5] He worked for Greenpeace in Australia and New Zealand from 2000–2005, and then worked for the Green Party on climate change issues.

    Where exactly is his experience in anything economic? As slightlyrighty stated earlier he got his soundbites. Like too many who studied politics at University they’re very good at politicing and not too good at the real world stuff.

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  18. hj (7,023 comments) says:

    If the government is so smart why is it pushing population increase given (according to the royal Commision on Auckland Governance) agglomeration benefits at the lower end using the high number of expected arrivals and not counting the negatives?

    And why did the ignored Governments own Savings Working Group lament:

    SWG Report:
    The Government’s role
    Clearly, there are serious questions to be asked about New Zealand’s economic policy and how we got into this mess. Why was it not better designed and managed, and more focussed, coordinated and strategic? Did the electorate simply get what it voted for, without realising what was really happening, or have New Zealanders not been well served over the years?
    Underlining the current difficult situation, the government is spending at an unsustainable level and running large deficits (the opposite of saving). As a result, it is borrowing a hefty $300 million a week. It needs to return the Budget to a surplus of no less than 2% of GDP as soon as possible.
    Looking ahead over the next 20 years or so, the government will face increasing costs from the effects of an ageing population. If the government is to keep its borrowing within a sustainable level (as it must) over this period, its options are to: substantially increase tax revenue, reduce government spending, or increase government sector productivity and performance. The first two options are clearly unpalatable. However, modelling shows that if the government can lift its performance and increase productivity by 2% a year for five years and 1% thereafter, there would be no need to raise taxes or cut government services. The SWG strongly recommends this.
    On other government policy issues, SWG recommendations include:
    – A much more strategic and integrated approach to policy generally.
    – Serious consideration of the impact of the level and variability of immigration on national saving, and the impact that this might have on the living standards of New Zealanders. There are indications that our high immigration rate has pushed up government spending, house prices and business borrowing.
    – Improving data on household and business saving.

    http://www.treasury.govt.nz/publications/reviews-consultation/savingsworkinggroup/pdfs/swg-report-jan11.pdf

    It is all about power and influence (Pol Sci101)

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  19. wat dabney (3,769 comments) says:

    Whiskies all round! hj got to post his favourite tired and highly selective bit about immigration again.

    It has been pointed out to him numerous times that there is plenty of other evidence showing the net benefits of immigration, but is such a liar and such a twisted, bitter little shit that he keeps posting his cherry-picked item.

    tags: sad lying twat

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  20. hj (7,023 comments) says:

    @ Wat Dabney
    Savings working group
    Posted on August 24, 2010 by Matt Nolan
    I am a bit tied down at present (which should be obvious by my lack of response to comments). However, I just had to pop around to say that I approve of the team for the savings working group – bunch of great thinkers that will look at the issue objectively, and come up with some genuinely useful solutions/analysis.
    http://www.tvhe.co.nz/2010/08/24/savings-working-group/

    80% of our population growth in the last couple of decades has been the net inflow of non NZ citizens .
    “Among policy and analytical circles in New Zealand there is a pretty high degree of enthusiasm for high levels of immigration. Some of that stems from the insights of literature on increasing returns to scale. Whatever the general global story, the actual productivity track record here in the wake of very strong inward migration is poor. In an Australian context, the Productivity Commission – hardly a hot-bed of xenophobia or populism – concluded that any benefits from migration to Australia were captured by migrants and there were few or no discernible economic benefits to Australians. And that was in a country already rich and successful and with materially higher national saving and domestic investment rates than those in NZ.”
    http://www.treasury.govt.nz/downloads/pdfs/mi-jarrett-comm.pdf

    Paul krugman
    Notes on Immigration
    http://krugman.blogs.nytimes.com/2006/03/27/notes-on-immigration/?_r=0

    It has been pointed out to him numerous times that there is plenty of other evidence showing the net benefits of immigration,

    As has been pointed out yours used equilibrium analysis and {someone} showed you can put in just as plausible assumptions and get the opposite results.
    Also your link omits infrastructure”

    A potentially more important omitted category is the large-scale public
    infrastructure investment that might be needed following the expansion of the
    population. This kind of expenditure is conceptually difficult to allocate to
    relatively small changes in the population resulting from immigration. There is
    also the question to what extent existing infrastructure is sufficiently
    underutilised to be able to cope with additional population without incurring
    congestion effects. This may be particularly important in New Zealand, where
    most new migrants settle in Auckland; a city in which, for example, investment
    in transportation infrastructure has not kept pace with increasing demand.

    http://www.dol.govt.nz/publication-view.asp?ID=362

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  21. hj (7,023 comments) says:

    ” bunch of great thinkers that will look at the issue objectively, and come up with some genuinely useful solutions/analysis.”
    http://www.tvhe.co.nz/2010/08/24/savings-working-group/

    ‘don’t think you’re no great thinker Watt: you’re that climate crank chap!

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  22. Griff (7,730 comments) says:

    Wat does a red.

    splutter no content.

    As has been pointed out the benefits you proposed are outweighed by the cost of ever expending infrastructure that is needed It is a ruse designed to pay for the last expansion in population called the baby boomers, A.K.A baby’s future eaters now reaching retirement.

    A new word for you rwnj

    sustainability

    Infinite growth is impossible within the finite nature on of the extent of the resource called Gaia*.

    *Greek god:personification of earth :twisted: :lol:

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