Why you should let banks fail

The Telegraph reports:

The crash of 2008 hit every country in the world. And yet none was quite so completely destroyed as Iceland. A tiny country, home to just 323,000 people, with cod fishing and tourism as its two major industries, it deregulated its finance sector and went on a wild lending spree. Its banks started bulking up in a way that might have made Royal Bank of Scotland’s Fred Goodwin start to wonder if his foot wasn’t pressed too hard on the accelerator. When confidence collapsed, those banks were done for.

In every other country in the world, the conventional wisdom dictated the financiers had to be bailed out. The alternative was catastrophe. Cash machines would stop working, trade would grind to a halt, and output would collapse. It would be the 1930s all over again. The state had no option but to dig deep, and pay whatever it took to keep the financial sector alive.

But Iceland did not have that option. Its banks had run up debts of $86bn, an impossible sum for an economy with a GDP of $13bn in 2009.

So the banks went under.

So what happened next? Iceland collapsed? For the next few years, the Icelanders were presumably shivering in their frosty homes, eating cod tails, and wondering where they could scratch together enough money for a packet of candles to see them through the winter?

Well, as it happens, not quite. Sure, there have been some very tough times. Interest rates went all the way up to 18pc to try to find some kind of floor for a currency that collapsed by more than 80pc. Strict controls on bringing money into and out of the country were imposed. Iceland’s GDP, not surprisingly, took an immediate hit falling by almost 7pc in one year.

Overall, four out of 10 Icelandic households were declared technically insolvent, mainly on account of the foreign currency mortgages they had taken out at the height of the boom. The International Monetary Fund had to step in with an emergency package of measures just to keep the country from sinking into the chilly depths of the North Atlantic.

It was about as bad as the mainstream economic consensus predicted it would be. The banks went down, and the economy went down with them. But there has been a twist in the tail. As it turned out, Iceland recovered relatively quickly.

Last year, its economy expanded by an impressive 7.2pc. Unemployment has dropped all the way down to 3pc, a level which means virtually everyone who wants a job has one. The krona was up by 18pc in the past year against a basket of rival currencies as global investors started to buy into its rapid recovery. Interest rates have been steadily reduced from emergency levels to 5pc, a sustainable long-term rate that rewards savers and yet makes it affordable to borrow and invest. Its debt to GDP ratio by 2015 was down to 68pc: significantly less than ours.

Contrast this to Greece which keeps getting bailouts, and because it has not had to adjust, its economy remains wrecked.

There is surely a lesson in that. The consensus insisted we had to bail out the banks. If we did not, the economy would be taken back to the Stone Age. But there was an alternative. In fact, governments could only protect domestic deposits. After that, they could simply say, very sorry, but there wasn’t enough money left to pay back all the debts the bankers had run up.

Bad debts would get written off immediately, rather than remaining a millstone around the neck of the country for years to come. More importantly, it would be better morally. Reckless, irresponsibly behaviour would not be rewarded. Bankers would have to think a lot harder about what risks they were taking, and what their consequences might be. Depositors would have to be a lot more careful about where they put their money, rather than just lazily assuming the government would pick up the tab for any losses. True, the collapse was a terrible shock for Iceland.

But it was short-lived, and the bounce back has been very strong. Next time a bank collapses, we should remember that – and perhaps follow its example.

Wise words indeed.

Good to see they’re focusing on the important issues in Chch

Stuff reports:

A city council committee is advancing plans to create a “Christchurch dollar” and wants a meeting with regulators about the concept.

Te Hononga Council – Papatipu Runanga Committee is interested in a community currency for Canterbury and the Treasury and Reserve Bank have been approached about the concept.

Things must be going great in Christchurch, and all the issues from the earthquakes sorted out for the Council to be focusing on such an important issue.

How to divide up the surplus

Eric Crampton proposes a sensible approach to the projected surpluses New Zealand now has ahead of us:

  1. A third of the projected surpluses being devoted to tax cuts (so about $2.8b by 2021).
  2. A third of the projected surpluses being devoted to spending increases
  3. A third of the projected surpluses being devoted to paying down government debt

He notes:

Government should resist calls to simply increase spending in response to surpluses. The government has been pushing hard, over the past few years, to encourage a greater focus on the value that government delivers for its expenditure as the measure of its success rather than just what it spends. If it identifies areas where spending delivers strong value for money, by all means increase spending in those areas. But that has to come with a commitment to pare back spending in areas where spending doesn’t really achieve much. Blunt calls to increase overall expenditure miss that the government still has a lot of work to do in identifying areas where spending should be reduced because it is ineffective.

I agree. Simply increasing spending to match the increased tax take due to fiscal drag is wrong.

Hysteria over bottled water

All the normal suspects are calling for bottled water exports to be banned, implying the level of exports is a threat to our water supply.

Here’s the five key numbers:

  1. Bottled water exports 8.7 million litres
  2. Extracted water 10 trillion litres
  3. Annual freshwater 500 trillion litres
  4. Bottled water exports/extracted water 0.000087%
  5. Bottled water exports/annual freshwater 0.000002%

Here’s an analogy in terms of something we can relate to – the size of NZ.

NZ comprises 268,021 square kms. If this represented our total annual freshwater, what would represent the total bottled water exports. It would be 0.0047 square kms which is an area equal to 69 metres long and 69 metres wide.

Another analogy is distance to the moon. The moon is 384,400 km from Earth. If this represented our total annual freshwater, then the distance representing bottled water exports would be 6.7 metres.

 

SFO confirms what we all knew

The Herald reports:

The email which Kim Dotcom claimed was proof of a conspiracy against him is a forgery, the Serious Fraud Office has said.

The Herald can today report for the first time that the SFO investigated the email, which emerged on the eve of the 2014 election claiming then-Prime Minister John Key was involved in a conspiracy to get Dotcom.

It is also a definite statement rejecting any possibility the email is genuine.

In a statement, the SFO said: “The SFO confirms that it carried out an investigation into this matter. As a result of that investigation, the SFO is satisfied that the email was a forgery.”

Dotcom said today that he still believed the email to be genuine and was surprised the SFO was able to be so definite.

“I believe the email to be real,” he said.

Oh bullshit. If you thought it was real you’d have used it in court. It was an unsophisticated forgery that a teenager could have done better.

Nash says scalp Smith

The Herald reports:

A Labour MP admits he went too far when he suggested a convicted killer and paedophile should be scalped in prison.

Stuart Nash, who is Labour’s police spokesman, responded angrily on Facebook after convicted murderer Phillip John Smith won a legal challenge against the Corrections Department yesterday over the confiscation of his toupee.

In a decision released yesterday, the High Court ruled that Smith’s right to freedom of expression was breached when his hairpiece was taken from him.

Writing on Facebook last night, Nash said: “What on earth is going on when a judge rules that a convicted murderer and paedophile’s freedom of expression was ignored and that his rights had been breached because Corrections took his hairpiece?

“He has no rights!! He sexually abused a young boy and then 4 years later stabbed this boy’s father to death as the man tried to protect his son!”

Nash went on to suggest that a fellow inmate should scalp Smith.

“Scalping is associated with American Indians but it was actually started by Europeans.

“Perhaps someone in jail who isn’t too fond of monsters who destroy little boys[sic] lives by stealing their innocence in the worst way possible could reintroduce Mr Smith to the practise[sic].”

I recall all the Labour MPs condemning Judith Collins for a poorly worded comment about double bunking. Will they be commenting on Nash’s call for other inmates to scalp Smith?

Australian Labor even more economically illiterate than NZ Labour!

News.com.au reports:

LABOR’S Shadow Assistant Treasurer Andrew Leigh has hit back at claims he is economically misinformed, saying his recently panned opinion piece was “not aiming to be the final word on overlapping ownership”.

Mr Leigh sparked a wave of criticism when he wrote a piece for the Sydney Morning Herald on Monday, arguing that five “faceless investors” — HSBC, JP Morgan, National Nominees, Citicorp and BNP Paribas — own a “massive chunk of our listed companies”.

Readers derided it as “embarrassing” and demonstrating an “abysmal lack of knowledge” for failing to differentiate between ownership and being a trustee. …

In the article, Mr Leigh, who has a PhD in economics from the Australian National University, likened the “faceless five” to sinister mega-corporations from science fiction, like Lex Luthor’s Lexcorp, Cyberdyne Systems from the Terminator franchise, or Weyland-Yutani in Aliens.

“If you look at the big players in our 20 largest industries, the five faceless investors have a majority stake in most of them,” Mr Leigh wrote. “They dominate industries as diverse as airlines, insurance, telecommunications and mining.

“Let’s take investor HSBC, for example. In petrol retailing, it owns one-third of Caltex and one-fifth of Woolworths. In electricity, it owns one-fifth of Origin and one-fifth of AGL. In life insurance, it owns a quarter of AMP and one-fifth of ANZ. In department stores and supermarkets, it owns one-fifth of Myer, David Jones, Wesfarmers and Woolworths. …

ABC Bullion chief economist Jordan Eliseo tweeted: “Interesting read Andrew — though isn’t part of this just custodians for large super funds with millions of retail customers?”

James Chessell, Europe correspondent with Fairfax stablemate The Australian Financial Review, chimed in: “Are you sure you aren’t confusing custodians with actual shareholders? HSBC doesn’t own 1/3 of Caltex.”

Fund manager and AFR columnist Christopher Joye added: “Andrew your research is totally wrong: the 5 firms are all custodians acting as trustees for other investors.”

Mike King, investment analyst with The Motley Fool, tweeted: “Maybe it’s time Fairfax pulled this article down given the underlying argument is completely wrong?”

Con Michalakis, chief investment officer at Statewide Super, wrote: “Seriously you do know what a custodian is — right?”

 

Wow this is an epic fail. It’s one thing to get this wrong in the heat of the moment, but to write an op ed that makes hysterical claims that merely expose his economic illiteracy is a special kind of stupid.

Warming hysteria

The ODT reports:

A Dunedin academic has warned parts of South Dunedin and the city could have just 17 years before sea-level rise makes them uninhabitable.

Prof Jim Flynn told the Dunedin City Council yesterday Australian insurance companies were already excluding sea-level rise as a risk covered in their policies.

That could make homes uninsurable in the area in the next five years, he said. …

A National Aeronautics and Space Administration (Nasa) formula showed sea rise for 2014 was 7.2mm and 8.5mm in 2015.

If the rate continued to increase, a 25cm increase could occur before 2034.

By 2090, South Dunedin would be under 5m of water, along with Forsyth Barr Stadium, the Otago Polytechnic and other low-lying areas.

Jim Flynn is an academic, but not in any climate field. He is a professor of political science. He should stick to that.

Unlike the ODT that just repeated his hysteria, Newshub did some actual research:

Prof Flynn said sea level rise is increasing over time and is almost at 1cm a year, with 2015 rising by 0.86cm and 2014 by 0.75cm, citing NASA data.

However Newshub was unable to verify this claim, with NASA’s website citing the current rise is at a rate of 3.4mm a year – significantly less than Prof Flynn says.

They also interviewed actual climate scientists:

Dr James Renwick and Professor Tim Naish, both from Victoria University and specialising in climate change, aren’t particularly confident in Prof Flynn’s predictions.

“He’s right to be raising the issue as a real concern but I have a little bit of concern that his numbers are slightly on the high side, or very much on the high side,” Prof Naish told Newshub.

Instead he said the 30cm rise globally would be more likely to be reached by 2050-60 – still near enough to be concerned, but not as frantic as Prof Flynn said.

The rising sea level is a problem, and it is mainly caused by human activity. But it isn’t going to be 25 cm in 17 years. I’d be willing to make a large bet on it.

On current trends, it is likely to be 5 to 7 cms.

What Palestinian foreign aid funds

The Daily Mail reports:

Britain is pumping huge sums of foreign aid into Palestinian schools named after mass murderers and Islamist militants, which openly promote terrorism and encourage pupils to see child killers as role models.

A Mail on Sunday investigation has found 24 schools named after Palestinian terrorists and evidence of widespread encouragement of violence against Israel by teachers, with terrorists routinely held up as heroes for schoolchildren.

Pictures of ‘martyrs’ are posted on school walls, revolutionary slogans and symbols are painted on premises used by youngsters, sports events are named after teenage terrorists and children are encouraged to act out shooting Israeli soldiers in plays.

 

And all funded via foreign aid.

I wonder how much money from NZ taxpayers goes towards these schools?

Sensible proposal for Wairarapa

Stuff reports:

After the fizzer that was the Wellington super-city proposal, the three councils that make up the Wairarapa look set to become one.

The Local Government Commission has published a draft proposal to combine Masterton, Carterton and South Wairarapa district councils, after its inquiries found there was a public mandate for change.

The new council would be made up of a mayor, elected by Wairarapa district voters, and 12 councillors elected from seven wards, including two rural ones.

Five community boards will also be created for Featherston, Martinborough, Greytown, Carterton and Masterton, comprising 21 members in total.

Sounds sensible to me – one Council for Wairarapa but community boards for the major urban areas.

Morgan’s UBI is actually a means test for Super

Gareth Morgan’s party announced:

all those citizens over 65 years of age – $200 each per week. In addition elders who satisfy a means test will be able to top up to the current NZ Superannuation level by a further $7,500 pa. We will index the top-up to elders’ costs not to average incomes.

This is actually a huge decrease for those on NZ Super. It is not a UBI but a stealth means test.

At present everyone aged 65 gets around $15,000 a year. Morgan is saying he will cut it to $10,000 a year for those who have income of over $50,000 a year.

Personally I support means testing NZ Superannuation, but they are hiding that this is what the impact of their policy is.

The other significant thing is that they are saying they will index the top-up to inflation not average incomes. This means that over time the level of income for retired people will be less than under NZ Super.

Now again I actually support this, but do people realise that this so called UBI is actually a means test and a reduction in the floor?

Damn suspicious

An amazing story at Stuff:

A new business, run by a cake decorator, which had no track record in waste management won a Westland District Council project to build a $7 million sewage plant in Franz Josef, a Stuff investigation has found.

Techno Economic Services, which is based in South Auckland, won the council project in the middle of last year, despite never having provided waste management or construction services before. The company was not a registered company at the time it won the tender. It registered with the Companies Office several months after securing the Franz Josef job.

Neha Bubna, the sole director and shareholder of the company, runs a cake shop in South Auckland, specialising in birthday and special occasion cakes. She is a recent migrant from India.

Incredible.

The process was overseen by Vivek Goel, the council’s assets manager who stood down last month as a Serious Fraud Office (SFO) investigation into his activities began. The SFO has declined to discuss the allegations against Goel.

Goel was in charge of organising tenders and supervising contracts for council projects such as wastewater treatment.

The project was not put out to public tender. It is understood three companies were approached for expressions of interest in the project. 

Even if this is corrupt behaviour by Goel, where were the checks and balances? Why was it not public tender? Did the Council CEO sign off on this without even asking what the track record of the winning company was?

Goel’s recommendation would have cost each of Franz Josef ‘s 240 ratepayers over $28,000 each, excluding the costs of running the plant which was estimated at $150,000 a year.

Again how was this approved?

The previous council approved the plan as it progressed from stage to stage, despite intense opposition from the tiny Franz Josef community. Before the contract could be finalised, a new council was elected and in November the incoming council, led by Mayor Bruce Smith, rejected the deal.

Good.

The Stuff investigation shows Goel has a chequered history, including a string of failed businesses, a bankruptcy and a Tenancy Tribunal hearing in which he was forced to pay $650 in damages to a landowner.

His companies, originally based in Auckland, included Goel Holdings, Anvik Liquor, Sai Super Mart and Sai Aden Investments.

In February 2006, Goel declared bankruptcy and all his businesses were liquidated.

So how did he get hired by the Council?

Nasty Trevor

You can tell how worried Labour are that they will lose Hutt South, by how nasty Trevor Mallard is getting on Twitter about Chris Bishop. But his latest tweet was a step too far, and saw him delete it and apologise for it.

So Trevor is saying that you are privileged if you don’t have kids. As one tweeter responded, that means he is accusing Helen Clark of having been privileged for not having kids.

This was not a random tweet. Trevor has been going on about Virginia having children, and Chris being privileged for some weeks on Facebook.

Now if a National MP made some comment about a Labour MP being privileged for not having had children (yet – Chris is only in his early 30s), it would be major news.

A real flood – not

The Herald reports:

It’s one thing to talk about changing allegiance to another country when a new president is elected. It’s another thing to go ahead and do it.

But that’s exactly what seems to be happening, at least in this little corner of the world.

The number of Americans who applied for a grant of NZ citizenship rose by 70 per cent in the 12 weeks following the election of President Donald Trump when compared to the same period a year earlier, immigration records obtained by The Associated Press show.

Sounds impressive, until you see the actual numbers:

Americans applying for New Zealand citizenship by grant:
November 8, 2016, to January 31,
2017: 170
2016: 100

So in 2016 0.000031% of Americans applied for NZ citizenship and in 2017 it was 0.000053%.

In 1.8 million years everyone in America will have applied for NZ citizenship.

Better Public Services update

The 2016 results for the 10 Better Public Service targets are now available. Some key results are:

  • ECE participation rate gone from 93.6% in 2008 to 96.7% in 2016
  • Maori ECE participation rate gone from 88.7% in 2008 to 95.0% in 2016
  • Pasifika ECE participation rate gone from 84.4% in 2008 to 92.9% in 2016
  • 8 month old immunisation rate gone from 64% in 2009 to 93.3% in 2016
  • Rheumatic fever rates gone from 4.0 per 100,000 in 2009 to 3.0 in 2016
  • Maori Rheumatic fever rates gone from 12.4 per 100,000 in 2009 to 6.9 in 2016
  • NCEA Level 2 achievement rates gone from 74.3% in 2011 to 85.2% in 2016
  • Maori NCEA Level 2 achievement rates gone from 57.1% in 2011 to 74.7% in 2016

These are health and education outcomes that make a real difference.

Key to leave Parliament

The Herald reports:

Former Prime Minister John Key is leaving Parliament at the earliest opportunity possible – next week.

He is due to give his last speech in Parliament next Wednesday.

He resigned suddenly in December last year but said he would stay on in Parliament long enough not to trigger a byelection – which usually costs about $1 million.

A byelection in his Helensville seat can be avoided if the resignation is within six months of a general election.

Next Thursday, March 23, is six months from the general election on September 23.

His valedictory speech will be very interesting. I’m looking forward to it. He will formally leave Parliament on 14 April.

Should he be kept in solitary?

Just read the sentencing notes of Stephen Williams for his attempted murder of another prisoner. He has been given preventive detention, so will never be released which is good. But what about the safety of other prisoners and guards?

On 11 December 2016, Mr Roper came to your cell to get some tattoos on his back. You did the tattooing while he sat in a chair with his back to you. At some point, you put down the tattoo gun and picked up a piece of a long florescent light tube that you had broken and hidden in your cell. You stabbed it into Mr Roper’s neck so that shards of glass became lodged inside the wound.

You then put Mr Roper into a ‘choker hold’, pressuring the carotid artery in his neck with your arm. He struggled against you, just making it outside the cell, where the CCTV camera captured the ongoing assault.

Mr Roper lost consciousness but you continued to attack him by stomping on his head. You then picked up a broom and struck Mr Roper across the head so hard that the broom broke. At this point, you stabbed Mr Roper in the back of the neck with the sharp end of the broken broom handle. …

You were annoyed when you were told Mr Roper had survived. When you spoke candidly to the Police about your attack, you said you did not like Mr Roper because you believed he had “narked” on you. You admitted planning the assault for months, making it clear that you intended to kill Mr Roper, and you said you could not believe that he was still alive. Indeed, you expressed regret and disappointment that he did not die.

So he openly said he hoped to kill him. And not the first time he has done this:

In 2014, you were sentenced to five years and eight months’ imprisonment for wounding another fellow inmate with intent to cause him grievous bodily harm; you stabbed him in the neck with a sharpened toothbrush.9 In that case also, you expressed disappointment that your victim did not die.

So he has twice tried to kill other inmates.

I wonder if the appropriate response is to place him in permanent seclusion where he can’t be a threat to anyone. He is obviously beyond rehabilitation and other prisoners shouldn’t have their lives put at risk.

Hamilton rates

Stuff reports:

A massive rates hike for Hamiltonians has been thrown out for now, but could soon loom again.

Confused and surprised councillors last week threw out the idea of 12 per cent rate rise for 2017/18, though the pressures of population growth means the topic won’t be off the table for long.

A 12% rates rise was totally unacceptable. How many hosueholds have had a 12% increase in income? Councils have to learn they can’t continue with rates increases well beyond inflation and wages.

No taxpayer subsidy for new Auckland stadium

The Herald reports:

An Auckland central city stadium wouldn’t get Government funding, Prime Minister Bill English says.

A stadium is back on the cards after Auckland Mayor Phil Goff commissioned work on the feasibility of a new central city site costing up to $1 billion.

This morning English said the Government’s position remained the same – it would not put up any money towards a stadium.

“Our top priority right now is this billion-dollar housing infrastructure fund, which we’re in intense negotiations with the council about right now. That’s going to take all our attention and cash for a while,” English told The Am Show.

“It hasn’t been raised with us. It’s not a high priority. We’re not aiming to put money into it.”

Good.

Second Scottish Independence referendum

The Scottish Government has said it will vote for a second independence referendum in 2018 or 2019.

The last referendum was meant to be a once in a generation vote and it is far from clear that Scotland will vote any differently this time, even with Brexit. In fact it is far from clear that Scotland would remain in the EU even if it leaves the UK, as they would have to apply to rejoin.

Personally I’m relaxed about Scotland leaving the UK, as it would force Scotland to live off its own income, rather than rely on subsidies from England.

The no vote won by 10% over the yes vote in the last referendum, which was a better result than the polls had indicated which was a 5% margin to no. Current polling has no at 5% to 7% over yes so at this stage hard to see a different result.

Public Polls February 2017

The monthly newsletter summary is:

Curia’s Polling Newsletter – Issue 106, February 2017

There were two political voting polls in February 2017 – a One News Colmar Brunton and a Roy Morgan.

The average of the public polls sees National 19% ahead of Labour in February, the same as in January.

The current seat projection is centre-right 59 seats, centre-left 49 which would see The Maori Party hold the balance of power.

We show the current New Zealand poll averages for party vote, country direction and preferred PM compared to three months ago, a year ago, three years ago and nine years ago. This allows easy comparisons between terms and Governments.

In the United States the net direction sentiment in the United States has improved significantly in the last two months, but is still negative.

 In the UK Labour has fallen to 25% and Corbyn’s personal ratings remain very low.

In Australia Labor’s TPP lead over the Coalition has increased from 4% to 8%. Turnbull’s approval ratings have dropped further.

In Canada support for the Liberal Government and Trudeau continues to drop in the wake of a broken promise on electoral reform.

We also carry the normal business and consumer confidence polls.

This newsletter is normally only available by e-mail.  If you would like to receive future issues, please go to http://curia.us10.list-manage.com/subscribe?u=e9168e04adbaaaf75e062779e&id=8507431512 to subscribe yourself.