Read this!

Forget Peters for just a moment; he’s probably a goner by the end of next week, but we won’t know until Tuesday at the earliest.

Instead, read Brian Gaynor’s “Open Letter to Lianne Dalziel.” It’s dynamite.

It’s not just that the Capital Market Development Taskforce announced this week is too little, too late. He says it’s probably the wrong people, with the wrong agendas, and we can’t afford to wait and find that out sometime at the end of next year anyway.

Gaynor traces the problems with the regulation of our financial markets to the ascendancy of the economic ‘dries’ in the 1980s, along with the chronic lack of any idea by Wellington policy-makers about how capital markets work. Individual investors were seen as “freeloaders” by the neo-liberals, and we failed to put in place the regulatory framework needed to restore confidence in our sharemarket.

As a result, our sharemarket has withered on the vine, and we’ve over-invested in housing in particular. The comparison with Australia is depressing. Hey Nats, really want to do something about the so-called productivity gap with Australia (that largely disappears when one controls for scale and indutrial sector)? Forget trying to screw the low-paid workers and focus on something that matters!

Gaynor lists many of the reasons we lost the plot in the 1990s:

The 1990s was a depressing period for investor confidence for a number of reasons, including:

* “The Takeovers Code, which was designed to protect individual investors during a bid, was rejected by the National Government following strong lobbying by two Cabinet dries, Ruth Richardson and Bill Birch.

* The NZX showed virtually no interest in restoring investor confidence while under the stewardship of chief executive Bill Foster, another dry.

* The Securities Commission, which is supposed to “strengthen investor confidence”, was hopelessly underfunded.

* Most of the brokers servicing small investors were absorbed into large, overseas-owned organisations because their customer base had been eroded. The majority of these multi-national brokers are not interested in small investors.

* The funds management industry stopped in its tracks as investors abandoned financial assets in favour of residential property.

* There were a large number of disgraceful market developments including partial, overseas-sourced, bids for Brierley Investments, Carter Holt Harvey and Lion Nathan, where directors often jumped the queue while giving minority shareholders no opportunity to participate.

* A small number of people made huge profits from the privatisation of Government assets while small investors suffered large losses.”

Oh, and regulation of the finance company sector was also defeated by the dries at this time. Now we are seeing the results.

Gaynor asks Dalziel:

“Minister, why did you need to set up a 14-month taskforce when it is clear that urgent initiatives are needed to restore confidence in our financial and investment sectors? Why have you stacked the taskforce with dries and representatives of the sell side of the market and appointed no genuine representative from the investor or buy side?”

The latest Taskforce represents a failure of leadership at a time when we can’t afford a failure of leadership.

I expected something good out of Gaynor in response to the finance company debacle, but this exceeds all expectations. Read it now!

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4 Responses to “Read this!”

  1. AndrewE Says:

    It’s an interesting letter and he makes some good points but I think there would be very few folks who would bother to read it or understand it.

    Agreed Andrew, but that’s a problem for the people who can’t understand it. They need to. The chronic underinvestment in NZ’s capital markets because of the continuing lack of confidence is everyone’s problem.

  2. MacDoctor Says:

    I also thought Gaynor’s article was excellent. I must say that I also think that much of the problem stems from a Kiwi reticence towards entrepreneurial and investment thinking – a slightly anti-business slant that makes people considerably less financially literate than they “should” be. I hasten to say that this is only an observation of my own and may be hopelessly wrong. I have lived in Britain and South Africa and the people there seemed to have a much better grasp of financial matters than people here.

  3. jafapete Says:

    Financial literacy is a problem. It’s incredible that they are only now, this year, making a concerted effort to introduce elements into every part of the school curriculum.

    Another structural problem is the lack of a capital gains tax, and, indeed, the tax breaks afforded middle class owners of rental propertires. But even a hint of moving on this brings howls of outrage. We’re stuffed.

  4. Regulation for growth « Jafapete’s Weblog Says:

    […] [Footnote: In the interests of balance, I should note Liane Dalziel’s response to Gaynor’s open letter, on which I posted recently. […]

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