Monday, October 27, 2008

Guaranteed government takeover

Looks like there's more going on with the government's deposit guarantee scheme than first meets the eye -- and far more than meets the eye of the mainstream media.  It's not just bad economics -- rewarding moral hazard and inviting depositors to favour riskier high-interest finance houses over safer, soberer lower-interest banks -- the fine print indicates it's also seriously bloody intrusive.  Like 'Benito Paulson's power grab in the States, it looks like the government is using this to "invite" itself right inside NZ's banks and private businesses.

Here's some excerpts from the deed that the banks must sign in order to be eligible for the guarantee scheme (thanks TV for bringing them to my attention).  One aspect which is frightening is the possible loss of privacy that may be experienced by depositors. See:

4.1 Principal Debtor to Supply Information to the Crown
The Crown may at any time during the Guarantee Period require from the Principal Debtor any information relating to the financial position or affairs, or the business, management or operation, of the Principal Debtor.

and

4.3 Sharing of Information
The Principal Debtor authorises the Crown to share information provided in accordance with clauses 4.1 and 4.2 with the Reserve Bank of New Zealand and authorises the Reserve Bank of New Zealand to share with the Crown any information relating to the Principal Debtor that the Reserve Bank has collected in connection with its functions under the Reserve Bank Act.

And

6.4 Reporting
During the Guarantee Period the Principal Debtor shall prepare and provide to the Crown, as soon as practicable after requested, any reports concerning the business, operations or financial position of the Principal Debtor and/or its subsidiaries, and shall ensure that all such reports are accurate, complete and not misleading.

And

6.5 Inspection
The Crown may, at any time during the Guarantee Period:
(a) appoint an inspector to report to the Crown on such matters as the Crown may specify; or
b) require the Principal Debtor to immediately appoint any person nominated by the Crown to report to the Crown on such matters as the Crown may specify.
The Principal Debtor shall provide access at all reasonable times to all its books and records, and to such of its directors and senior officers as may be specified, to any such inspector, and otherwise take all reasonable steps to facilitate that inspector’s inspection and review and report.

Further, should a guarantee payment ever be called upon, it seems as though the bank would need to effectively give itself over to the Crown:

10.9 Subrogation
Without prejudice to any rights the Crown may at any time have against or in respect of the Principal Debtor (including by way of subrogation or indemnity, under statute, or otherwise), the Principal Debtor irrevocably acknowledges and agrees that any money paid by the Crown to a Creditor under this Deed shall, immediately upon such payment, constitute a debt due from the Principal Debtor to the Crown, which debt shall be payable by the Principal Debtor to the Crown over any period of time and on any terms and conditions that the Crown (in its sole and unfettered discretion) considers appropriate.

Naturally, these are not aspects of the scheme focused on by the mainstream media…

UPDATE: Another friend writes:

    This is getting ludicrous. A group of British MPs want the government, who now own a majority share in the Royal Bank of Scotland thanks to the “bailout” of corporate losers and invertebrates, to refuse an extension on a loan to the two Americans who own my favourite soccer club, Liverpool FC.
   
Makes it pretty obvious, doesn’t it, that the “bailout” was just an excuse for a powergrab by the statists. In fact it was the opportunity of a lifetime for the bastards.
   
This news has just ruined my morning, as I was on a high following Liverpool’s magnificent effort in ending Chelsea’s four and a half year undefeated home league record.

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1 Comments:

Blogger Ruth said...

Just a comment on 10.9 Subrogation

Further, should a guarantee payment ever be called upon, it seems as though the bank would need to effectively give itself over to the Crown

If payment is called upon the bank/financial institution is no more - the asset is gone.

So the crown/taxpayer gets nothing except the bill. The guarantee is worse than you think.

10/29/2008 02:55:00 pm  

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