Monday, 30 August 2010

Hubbard’s SCF: Too big for govt not to create another big balls up

Talk has now turned from the Serious Fraud Office’s Kafka-esque harassment of to Aalan Hubbard and his other companies to a government “bailout” for the company he founded and chaired, South Canterbury Finance (SCF). 

“Too big to fail”?  Surely that should mean “too big for taxpayers’ money to be wasted.” What it means, however—and I say this with much sadness—is that it’s too big for governments to ignore.  And you know what that’s going to mean, don’t you. Another balls up.

Consider the foolishly offered government guarantee scheme for failing finance companies, without which talk of “bailout” would even be talk.  Or shouldn’t be.  As many sane and sober folk were saying when Michael Cullen and John Key agreed to the scheme, “The big banks didn't need it, even at the height of the crisis, and sure don't need it now, and its only function was to prop up risky finance companies that should have failed.”  Now a big one has, and with the combination of imminent collapse and Bill’s foolishness the taxpayer now finds him-and-herself on the hook for several hundred million dollars. Thanks Michael.  Thanks John. You dickheads.

Consider too the harassment of South Canterbury Finance’s founder and chairman Alan Hubbard by the Serious Fraud Office—an investigation over issues in another company which are still not clear, which have been deliberately left vague, and which have been used as a stick with which to blackmail Mr Hubbard into handing over the keys to this company—an investigation done so poorly and so publicly that it all but guaranteed any chance of South Canterbury Finance finding another funder to make up its capital reserves was effectively extinguished. (We’ll never know whether SCF did have a chance of saving itself, but the jackboots rendered that possibility null.)

What the government should have done was not what it did. Risking taxpayers’ money with this sort of guarantee was unconscionable; putting it at risk with the Keystone Cops’ persecution of the company’s chairman was intolerable. To compound both errors now by pouring taxpayers’ money down what looks like a black hole would be beyond irresponsible—which is what it will probably happen.

What it should do now is allow liquidators to the clean out the dead wood as quickly and effectively as possible so that resources tied up in this debacle can be set free for other entrepreneurs to find a better use for them, ASAP—to use them as fertiliser for new ventures, unencumbered by whatever meddling strings the government would like to attach .

Since that’s the most logical thing to do, however, we can be almost certain that it won’t be done. Expect instead to see South Canterbury Finance effectively nationalised, using the money you were thinking of using on home improvements, debt repayment and educating your children to be used instead to prop up a zombie company that was doing moderately well until the jackboots came through the door.


  1. To big to Fail?
    You have to ask yourself, how fucking hopeless is Key / Cullen in losing $900 million of our money.
    Surely grounds for an SFO inquiry I should think into Parliament


  2. SCF went from AAA rating to broke within 5 years. Govt had nothing to do with 99% of that PC. Maybe there is no conspiracy, and Hubbard has been incompetent, eh.

  3. SCF never had a triple A rating, and never could have.

    Still, as long as nobody checks your facts it makes your post *sound* really good.

  4. SCF had a AAA rating for investors in secured debenture stock, and was considered to be in the top three or four safest finance companies in New Zealand back in 2005 when partial floating was considered. Of course the float never went ahead...

  5. Gareth Morgan Investor30 Aug 2010, 15:41:00

    Huh, you always have a go at Gareth Morgan from time to time PC here on you blog for the low returns of his managed funds, but at least Gareth is not doing a Bernie Madoff as it looks now, with which Hubbard has been doing in the last few years. Hubbard Madoff!

  6. Even if it was by far the biggest and safest finance company in the country, it would not have got a AAA rating.

    In 2001, only nine companies in the entire US had a AAA rating, and SCF isn't quite big enough to warrant that.

    Most recipients of AAA ratings are sovereign states due to their almost inexhaustable ability to tax their citizens.

  7. Go back to 02/09/05 for the debenture rating. Regardless of what you think the rating was many of those in the finance profession have been commenting and warning about SCF for over 5 years. Long before govt stepped in.

  8. What do you mean "regardless of what you think the rating was" ???

    Don't you mean regardless of whether you are wrong or not, you want the rest of your point to stand?

  9. “but at least Gareth is not doing a Bernie Madoff”

    Seriously how do you know that? Is there some government regulation that whispers to you?

    The lesson is never put all your investment eggs in one basket.

  10. Actually, twr, if you do your research you will see Ruth is right; in 2005 SCF did have a triple A rating for investors in secured debenture stock.

  11. Triple A rating from who? Didnt SCF only get rated by S&P in 2006?

    Links or it didnt happen.

    The idea that the government should not have done its JOB by forcing the SFO not to investigate just to save money is horrific.

    How many other things should the government do to protect its "investments"? Maybe ban competition in sectors in which government owned businesses operate? Maybe put tariffs or quotas on imported substitutes to products supplied by a government company? Perhaps they could sell pardons to rich local businessmen to keep that filthy tax lucre pouring in?

    I think Hubbard supporters are going to keep hearing worse and worse news about SCF and Aorangi. Revealing their accusations of jackboots and keystone cop investigations as just more fanciful nonsense. (Tip: you cant maintain credibility if you simultaneously complain about an investigation being too public and about the lack of information being released.)

    The investigation and the guarantee are COMPLETELY DIFFERENT THINGS. One should not have an impact on the other. To demand otherwise is to demand corruption.


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