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Speech - Reserve Bank of New Zealand - Hone Harawi

Reserve Bank of New Zealand Amendment Bill
Wednesday 12 December 2007
Hone Harawira, Member of Parliament for Te Tai Tokerau

In July this year, the Waitakere Well-being Summit held a hui at the Kelston Community Centre, to consider a simple question – do all families in Waitakere have enough to live on?

What they found is that 19% of people living in Waitakere – some 27,000 people are living on low incomes, but even amongst the poor they noted disparities, for while they found that some 15% of Pakeha were categorised as low income; for Maori that figure rose dramatically to 25%; and even higher to 27% for Pasifika and 32% for Asians.

The focus for the hui was to think of ways to help families in multiple disadvantage, and are therefore at greatest risk of extreme hardship.

Well Mr Speaker, we know all about the impacts of the current financial situation on citizens here in Aotearoa, and I remind the House here today that the level of household debt in the last seven years has rocketed by a massive 73.6%; with consumer debt growing larger by the day, the Consumer Price Index has increased 1.8%, house prices haven’t just gone through the roof – they’ve settled above the cloud layer, prices for basic foodstuffs have shot up, the costs of getting finance are ever increasing, and to no-ones great surprise, dodgy finance companies playing fast and loose with everybody else’s money are going belly up as well.

Over the last 18 months in fact, twelve such companies have collapsed, creating crisis and chaos for more than 50,000 investors and costing $1.3 billion in debenture deposits.

And coming back to that hui in Waitakere, I note that one of their recommendations was to regulate lending institutions and lending rates – particularly in the non-bank financial institution sector (retail money lenders and loan sharks).

This Bill is supposed to introduce changes so that ‘deposit takers’ including non-bank deposit takers like finance companies, building societies and credit unions, will have to take greater care of the finances of their investors, by getting a credit rating from an approved rating agency.

And I can’t help but see the irony in the latest finance company to bite the dust, Capital and Merchant Finance, going bust under the slogan “INVEST WITH CARE” – not that the 7,000 investors who are owed about $190 million, have much to laugh about.

Certainly these 7,000 thought they were investing with care by putting their hard earned cash into the country’s 13th largest finance company; a company with a high profile through sponsoring TV1’s news, until it all went haywire last week, along with the Christmas plans for 7,000 households.

The Maori Party supports the movement that this Bill makes to establish regulations for deposit takers.

We support the maintenance of minimum capital levels and capital ratios; limiting exposure; and the risk management approaches in line with good corporate governance standards.

The McDouall Stuart 2007 report on the New Zealand finance company sector, 'Flow and Ebb', set out a clear context for the volatility that has affected finance companies over the 18 months, and when you consider that this is a sector with more than $10 billion of investor money, it makes sense for parliament to try to minimise financial collapses.

And of course, when you consider that this is a sector with more than $10 billion of investor money, it also makes sense for parliament to express concern about the impact of such volatility on whanau, on the economy, and on general wellbeing, and to do all it can to ensure care is taken in providing for the future.

Mr Speaker, there’s a lot of talk around the easy cash market about the impacts of financial collapse on mum and dad investors, so I thought I’d tease out that ‘mum and dad’ concept a bit more, and it occurred to me that one of the greatest investments any parents can make for their descendants is in reviewing their financial, emotional, genealogical and physical circumstances when it came time for them to get married.

Now back in Maori times, partnerships forged through marriage were regarded with enormous significance; peace and the settling of grievances, strengthening of whakapapa, political solutions, land rights – these were all factors which might be considered by elders in pledging their descendants to another hapu, or even another iwi.

Whanau would look into the other parties’ background, hold negotiations and debate with the whanau of the other party, so that when the deal was finalized, everyone would be aware of the legacy being created by the union.

In much the same way, if whanau considering making financial investments, should also carry out the same kind of thorough investigation and analysis in order to guarantee the future health of their investment.
But to do that, investors need to have better information from which to make strong decisions. Too many investors, Maori included, invest their savings in finance companies, without realising the risk they’re exposed to, due to the fact that the finance companies don’t always have the proper rules and standards in place, to properly safeguard their investors.

The common misconception is that there are standards in place, and proper monitoring, but there hasn’t been, and the result is that people – many of low to modest incomes – have lost their hard-earned savings.

Now we can blame the individuals for not doing their homework, but often we find that some people are simply being pushed to live beyond their means.

And it’s also a matter of knowing whether or not the claims made by financial advisors actually stack up; like companies saying they were underwritten (when they weren’t), that they were guaranteed by Lloyds of London (when they aren't), or that the investor would get their principal back even if the company collapsed – which of course they didn’t.

The real test of this of course, is not so much about whether investments are safe – all investments carry a measure of risk, and the greater the promise the greater the risk – no, the test is on whether the investing public believes the rules of the game are fair, and this is where recent research from Massey, warns us that legislation like this is needed, quick smart.

Dr Chris Malone, from Massey’s College of Business says a failure to quell investors’ fears and help remaining financial institutions survive could lead to negative impacts on other sectors, and that restoring investor confidence is critical to cutting the circuit of panic.
And so the Maori Party welcomes this proposal for a sound and efficient financial system, and putting measures in place to avoid significant damage to that system in the event of finance company failure.

Just as our tupuna did all the homework necessary to ensure a good marriage, so too should we carry over those same principles to ensure the Reserve Bank can effectively protect the New Zealand finance system.

The Maori Party will support this Bill at its first reading.


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