The good, the bad and the ugly – NBR's plays of the week

Chance for a fresh start
It’s hard to find any positives to come from South Canterbury Finance being put into receivership this week but at least the ailing company has been put out of its misery.

And while taxpayers across the country can feel rightly aggrieved at bailing out South Canterbury’s investors, the government arguably picked the least bad option.

The economic stagnation of Japan over the past couple of decades is an example of what happens when governments keep zombie financial institutions on life support when they should be reaching for the off switch.

South Canterbury Finance has been in a moribund state for some time and, if the government had decided to meddle by taking an ownership stake or giving it a loan, it would have made matters worse.

If it had taken either of these options, the bill to the taxpayer could have been much bigger down the line.

Creative destruction

Ignore the doomsayers – it’s not the end of the world when a major company, be it in finance or any other industry, falls over.

In fact, bankruptcy is a necessary and healthy part of capitalism, enabling scarce resources that were being directed to unprofitable uses to be quickly shifted to more productive activities.

Keeping loss-making companies going artificially with the forced generosity of taxpayers simply enables more resources to be wasted and for a longer time.

When a company fails, the capital it owns, be it farmland, tractors, chocolate-making machines or high-rise buildings, doesn’t simply cease to exist.

Instead, it is transferred to new owners at prices that reflect the new market reality.

For that reason South Canterbury Finance failing is actually good for the economy but it would have much been better if the government hadn’t got itself involved unnecessarily.

Sore winners
The rest of New Zealand has just bailed out Timaru but you wouldn’t know it from the ungrateful attitude being shown by the worshippers of Allan Hubbard.

They seem to blame South Canterbury’s collapse on the government and by proxy the rest of the country when the fault lies with the company’s management for dishing out the dodgy loans that got it in trouble.

One wonders how many of Mr Hubbard’s more vocal supporters have been recipients of his generosity through the interest-free loans he’s been known to hand out.

For weeks the Hubbard fan club has invaded comment boards on news sites such as NBR Online, berating those who dare to criticise their idol.

What they don’t seem to understand is that when your company costs the taxpayer more than a billion dollars you should expect some serious scrutiny and plenty of criticism, with possibly a bit of anger thrown in too.

Not a saint
The attitude of Mr Hubbard himself also leaves a lot to be desired.

Following South Canterbury’s failure he claimed that he could have saved the company if he hadn’t been sidelined, blaming the government for putting him in statutory management.

But as reported in the NBR print edition today, former South Canterbury director Stuart Nattrass has pointed the finger at Mr Hubbard, saying his refusal to dilute his shareholding by raising capital contributed to the company’s demise.

“The strategy Allan was pursuing was too large and too ambitious for its capital structure,” he said.

Compared to other bosses of failed finance companies such as Rod Petricevic and Eric Watson, Mr Hubbard has been given a relatively easy ride by the media and general public until now.

But he was doing the sort of related-party deals these other men of finance have been given a hammering over.

He still has plenty of support in Timaru but Mr Hubbard will struggle to find much in the rest of the country.

An ugly precedent
Although it might have been the best decision in the circumstances, National’s choice to hand over more than $1.7 billion upfront to South Canterbury Finance could have serious political consequences.

The “heads I win, tails you lose” game played by investors in the government-guaranteed company has rightly left voters who didn’t invest in it, or invested in other finance companies that didn’t the same special treatment, fuming.

National may be hoping that by paying everyone quickly the issue will be largely forgotten by the time the next election rolls around.

But it won’t disappear because every time National announces even a minor spending cut its political opponents will throw the big bailout right back in the government’s face.

If National decides to, say, re-introduce student loans or make cuts to Working for Families or early childhood education subsidies, it can hardly preach fiscal prudence with a straight face when it found the cash to give to wealthy finance company investors.

No guarantees
But Labour would be standing on shaky ground if it tried to launch a major assault on the bailout for finance company investors, seeing it set up the original guarantee scheme  in the run-up to the 2008 election with National’s agreement.

Labour leader Phil Goff’s suggestion that South Canterbury’s problem was National’s failure to get the economy growing strongly enough for the company to trade its way out of trouble, was ludicrous.

However, because National was holding the egg when it finally burst it will be the party that gets most of the blame for the mess.

The issue could prove especially damaging for its support among male blue-collar workers, who swung from Labour to National in large numbers at the last election after getting sick of “nanny state” bossing them around.

These voters, known in the US as “Reagan democrats,” are crucial to National’s chances at the next election and they are unlikely to be happy at their hard-earned tax dollars going to the likes of NBR Rich Lister George Kerr, who was first in the creditor queue and would have got all his money back anyway.

While these working class voters may not cause National to lose, they could leave it saddled with a hotchpotch of coalition partners from all parts of the political spectrum.

This would leave National even more incapable of bringing about the change New Zealand needs but isn't getting.

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10 Comments & Questions

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I think his trial has already begun and you (the media) have already made up your minds on his guilt. I think you should all pull your heads and give your keyboards a rest as he might argue that trial by media has made it impossible to get a fair trial. You can't tell me a jury would be impartial with your biased reporting since he went under. Is this the New Zealand way eh? If the only charge he is facing at the moment is the money to buy a boat that is on pretty shaky ground for a dept of prosecution to put up. Don't you know a boat of that value appreciates? And the other matter about paying a woman a vast amount of money for so-called 'services rendered' will go nowhere. Who is to say how much is too much and this has to be a judgement call anyway? I don't think you can ever be overpaid for something like this can you? There sure isn't an award wage my friend. Petricevic is too cagey to leave himself wide open but some walloper will get him for jaywalking if nothing sticks, you watch. If you invest money there is always the possibility you will lose it. If the loan to Craig McDermott on Queenslands Gold Coast hadn't fallen over then we wouldn't be hearing anything and Bridgecorp would be the gold eagle. Take a check up from the neck up all you journos.

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People can pay and do what they like with their money, tell I'm wrong and these guys used Bridgecrop investors funds to live the good life.... not to mention the Porsche debarkle. The guys a crook... and deserves all he'll get including the wonderful welcome at Moretons in St Heliers not that long ago.

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Hubbard's old partner Rolleston, got clear with 40 million bucks in 2004 after a big bust up with Hubbard. Was that all that cash his legitimate share of the operating profits? If so they were making a hell of a lot of profit back then and they should never have run into any trouble...

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I presume Hubbard worshipers will refuse money from the tax payers

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Um well no Leonard.
The Nats,Labour and Greens were all in favour of the GG.
They make the law and I pay homage to it.
I've paid enough income tax at 39 cents over the lasty ten years than I am due for a kickback.
I haven't derived tax free capital gains and claimed highly geared rental losses like a lot have.
So I reckon its a fair Cop.

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Dirty allan hubbard. Shame he didnt die in that big christchurch earthquake but then again he is pretty old and will die pretty soon anyway. Rot in hell hubbard you ponzi scumbag!!!

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NBR, you may wish to extend your investigative journalisms reach somewhat.

Being one of the "more vocal supporters" thought it appropriate to clarify a few points.

"One wonders how many of Mr Hubbard’s more vocal supporters have been recipients of his generosity through the interest-free loans he’s been known to hand out."

Fact: NONE

"What they don’t seem to understand is that when your company costs the taxpayer more than a billion dollars you should expect some serious scrutiny"

This is very clearly understood and exactly why we are petitioning for a judicial inquiry, to get some serious scrutiny of SCF and it's boards decisions. You may not be aware that Hubbard was unable to make decisions since December 2009. The board agreed to appoint Maier however Maier insisted he would only take the role IF Hubbards decision making ability was removed. The 'board' agreed. The ex Hubbard 'SCF board' have been far from transparent about the goings on at SCF in the last 9 months.

The companies board meeting notes will make interesting reading.

Some seem to be satisfied with Maiers 'riddles' of the goings on at SCF over the last 9 months, many are not and the proof is in the pudding. Maier failed in his role and paid himself handsomely for it, at the taxpayers expense.

"when your company costs the taxpayer more than a billion dollars you should expect some serious scrutiny and plenty of criticism, with possibly a bit of anger thrown in too."

So why slam Hubbards supporters for critiquing the processes that resulted in the cost to taxpayers?

All we seek is transparency, which has been so sadly lacking by the so called 'SCF board'.

P.S. No-one here is worshipping Allan, we are supporters of a man of integrity and we seek transparency.

We already know what the truth is and transparency will reveal it.

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Kieran swore black and blue (even used the same FACT:... language as above) on propertytalk that trevor thornton indirectly owned scf, until it was pointed out that, even though a monkey can use the companies office site, he couldn't use it correctly and he retracted all his FACTS. Give up now Kieran before you look any more stupid.

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Having just read your article I feel the need to set some things straight. I am a Hubbard supporter, not a worshiper. This man and his wife have been crucified by the media; yes you, and any hope of unbiased opinion has been shouted down by critics such as Talkback hosts M Laws, JT & Willy Jackson & highly biased bloggers like Darren Rickard to name a few.
To criticise us for invading comment boards on NBR etc is lame, would you rather we shutup and let the Govt have free reighn in its asset stripping game?
New Zealand didnt Bail out Timaru. Under the Govt Guarantee scheme taxpayers, which Timaru residents are too, payed out SCF investers.
Mr Hubbard has support all over NZ all be it small. Thanks to the media beat up most NZ'rs have formed a biased opinion of the hubbards.
My advice is to exercise GOOD journalisem and report good unbiased Facts without leaving out relavent facts that may not make your story look so sensational and stop being a Govt hand puppet like Bernard Hickie.

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It is such a shame to find the most of the media crucifying Allan Hubbard and this whole saga actually has financial ties with the Govt somewhere along the lines which in turn these journalists also want to make the govt to be the innocent party as to not sacrifice their jobs, it is also such a shame these crucifying journalists obviously are not looking into the heart of the matter by understanding that the govt is not as rosey as they have been made to look the govt are hiding alot of crucial matters that would in turn prove that they in fact are the guilty party in this whole saga by lying to the people of NZ, one man stuffed up in their management structure and now the govt are out to hide the true facts by trying to cover this up.

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