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Are Clark/Cullen risking economy to retain power?


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Fran O’Sullivan has another good article this morning in the print edition of the NZ Herald, unfortunately it does not appear to be on line, it is at Page A15, but thanks to Press Reader , Adam can bring you some snippets. UPDATE #2: Article is now on line – timed at 11:17 a. m. – but Adam suspects it was later.

The article is entitled, Time for Bollard to step in for sake of economy, with a secondary lead in of-Government guarantees of depositors’ savings fail to address the key issue.

Ms O’Sullivan returns to the theme of some of her recent articles, namely the way the Government (Clark/Cullen) are playing politics with the economy and the banking system. her article begins:-

RESERVE Bank Governor Alan Bollard must openly tell the Government to stop playing politics and guarantee the trading banks’ foreign funding lines, before they ration lending and stall the New Zealand economy.

If Bollard can’t summon the courage, he should resign. Because there is little more than a three-month window before trading banks put the clamps on new loans and tighten conditions to existing customers.

In this article Ms O’Sullivan is one of the few in the MSM questioning what is going on. She is echoing some of what Bernard Hickey said in his Stuff blog piece of the other day. An item on which Adam made his views clear as well.

O’Sullivan goes to write in this next extract:-

Neither Prime Minister Helen Clark nor Finance Minister Michael Cullen is telling the voting public this vital truth. Instead they are allowing voters to be lulled into a false sense of security through Clark’s announcement that the Government has acted to keep depositors’ savings safe and avert any panic withdrawals.

Cullen in particular should know the reality of the situation, but politically he does not want to frighten the horses.

The scheme Clark announced last Sunday includes a Government guarantee for retail deposits inNew Zealand-registered banks and other institutions. But unlike the Australian scheme, the NewZealand Government’s guarantee does not cover funds the banks access from international wholesale markets, a factor which will leave the banks short of vital cash to loan to customers unless something is done.

Hickey and one or two others have pointed out this very considerable shortcoming in the scheme. O’Sullivan then points out:-

National leader John Key and finance spokesman Bill English, who know the real story, are too spooked that Labour will attack them for fearmongering to go public.

Adam agrees, Key/English will be attacked if they go hard on this, Clark/Cullen will invoke all sorts of demons.

It is in this next extract that O’Sullivan makes a very interesting accusation, one that if true and if picked up on by others and substantiated could be very damaging, nay devastating, to Clark’s electoral hopes:-

The political calculation will be feral. At issue is whether Clark and Cullen— two extremely skilful political strategists— are manufacturing a mini-crisis which will cement them as leaders in the voters’ eyes if they come to the party (again) before the election by issuing an inter-bank guarantee to keep ‘‘Kiwis in business’’.

Emphasis in bold by Adam. If O’Sullivan’s thesis were to be correct, to Adam’s mind it would be a devastating charge to be levelled at Labour. The impact would far outweigh anything we have seen previously. If of course the media were to pursue the issue.

O’Sullivan goes on to write:-

Labour will have observed how British Prime Minister Gordon Brown came off his political deathbed to emerge as a hero in Churchillian mode by bailing out the British banks. Clark and Cullen know from experience how former Labour finance minister Sir Roger Douglas was able to set the agenda after the 1984 election when he had to act to stem a currency crisis.

Ms O’Sullivan suggests that Dr Bollard should exercise his legally guaranteed independence and follow the example set by Glenn Stevens in Australia and Ben Bernanke in the USA and call the government to account on this matter. Though she does not seem that hopeful that Dr Bollard will do that. In fact she suggests that the politicians may not be keeping the RBNZ fully in the loop on this matter. If this is the case, that would be an outrageous act by the regime.

The article notes that Clark’s announcement last Sunday was in fact based on shaky ground. The scheme being poorly put together and already subject to major revision as regards the inclusion of finance companies. Then Ms O’Sullivan notes:-

The inter-bank market has basically been seized up for three weeks now. With fear stalking the international markets, lenders are now loath to place their funds anywhere, irrespective of how creditworthy the country, if its Government does not underwrite the risk.

The Reserve Bank explained to me earlier this week that ‘‘given the ownership of much of the banking system in NewZealand, the Government is mindful that the foreign shareholders may be the ultimate beneficiaries of any Government support for the banks’’.

Yes that may be the case, but if they went down with loss to NZ depositors no body would be that much concerned about that then.

What is of significant interest here as well is this comment by O’Sullivan:-

In fact, Cullen rejected an offer by former Australian Treasurer Peter Costello to give the New Zealand depositors of Aussie banks domiciled here the same protections Aussie depositors enjoyed and forced them to set up separate local entities. He can’t have it both ways and allow anti Australian attitudes to predominate over the national interest.

To be fair to Cullen, it is possible that he has been too focused on winning the election to consult the major institutions. But the fact he has since refused to talk directly with the predominantly Australian-owned trading banks on the issue rules out mere incompetence.

Just what is Cullen up to here. Cullen is a very clever man. Adam suspects political games could be afoot.

O’Sullivan concludes her piece as follows:-

But the banks’ ability to access cash from their Australian parents is limited by Aussie prudential rules. This means they do need to get funds from overseas or lending will contract.

Bollard was told this by the bankers in a series of private tete-a tetes about 10 days ago.

He is paid big bucks as the nation’s top central banker. Time to tell the public the truth.

Absolutely, after all this election is about trust as Helen Clark keeps telling us. Just how far will Clark and Cullen go?

O’Sullivan had this great comment on Bollard which encapsulated much of what she wrote in the article:-

So far, this Government has reduced Bollard to a well-paid eunuch as it announces policies for political effect on the election campaign trail, instead of forming a statesmanlike response to the international crisis.

What the Americans would term the ‘money quote’

UPDATE:– Fran O’Sullivan article as pdf fran18oct_one

  1. adamsmith1922 permalink*
    19/10/2008 19:08


    Saw the news, but Clark seems more interested in political jibes

    TVNZ News coverage was not very good on the Nats offer in my view


  2. anonymous permalink
    19/10/2008 18:33

    Still don’t get it. It’s a bit late for lending guarantees.

    Iceland was the smallest currency in the OECD.

    The NZD is next.

    basically: move assets offshore, into sterling or euro cash with bank guarantees.

    or, well, you’ll be fucked when you job is gone, your house is reposessed,
    and there’s no dole for the likes of bludgers like you!


  3. 19/10/2008 18:07

    John Key held a media briefing today offering bi-partisan support for action:


  4. adamsmith1922 permalink*
    18/10/2008 12:43

    What is so dispiriting is that MSM are totally failing to address this issue and others.

    They give air-time to Peters and his racist views, TV3 goes on about very little, others worry disproportionately about shower heads, yet despite evidence that economic issues concern the electorate there is little rigourous analysis.


  5. DyannT permalink
    18/10/2008 12:37

    Time to do some viral email marketing of this article?


  6. Colin Lucas permalink
    18/10/2008 12:33

    The point about the interbank lending has been made by a number of other commentators, Alexander from the BNZ as well as Gareth Morgan for example. sadly none of our so-called political commentators have picked up on it as probably they don’t understand the issue. it would be nice if Key, English or perhaps Hide were to raise the issue to stop Clark and her pet chimp Cullen from getting such a free ride.


  7. Adolf Fiinkensein permalink
    18/10/2008 12:32

    They’d better be careful or Mr Key will trump them again. With the aid of a few Chief Economists from trading banks.

    I don’t accept the notion that Cullen could demonise them, so long as they sell the deal along the lines of ‘bailing out Main Street, not wall St’



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