Financed to Fail

It has just been reported that the value of the Euro has slid drastically, this is directly related to the collapse of the Greek economy, joining the Irish in their misery. The Greeks have been told by the IMF, if they want assistance, they have to reign their spending, more to the point, even sell off some of their Islands as first steps to assist themselves in their recovery. This suggestion has stirred a National fervour and rage at the authorities, who being blamed for allowing it to happen. The Irish and Greeks have had a wonderful time, both behaving like drunken sailors with their spending. In these Countries as everywhere else, there has been a lot of money sloshing around and available. Their lending institutions began a lending policy to a degree that normal prudence should have told them that they were courting trouble.

What has gone wrong with the world? We in our little corner of the world have had thirty of forty Finance Companies all go ‘belly up’. Some of these institutions have lost up to $500 million each. I know from personal experience that there are plenty of people in this world who are prepared to finance some dubious investments, especially if it’s with your money. If their enterprise comes off, and it’s a success for them, everything is wonderful. However if it should fail, it’s never their fault. ‘You are a stupid lender, you shouldn’t have lent me the money in the first place.’ A very disturbing factor is that when you examine the principals of the failed companies, the same names of the executives keep popping up. Yes, many have failed before but what a merry time at the investors expense they have enjoyed. Luxury cars, boats, and all the other toys that they buy with the punters money. Which brings me to another point, the part that the Trustees and auditors played, or to put it another way. Didn’t play. How is it that they didn’t that detect that many of these companies had been of the brink of failure for some years? Worse still it seems that some were on the later stages actually financing their operation from new money to make it work, when in fact they were broke and insolvent. In fact many were but now were running a Ponzzi Scheme, and our watch dogs missed it.

How things have changed, our forbearers never bought anything unless they had the money to pay for it. They knew the lessons they learnt from the depression and the tyranny of debt, and unemployment that came with it. Then someone discovered how to create credit from nothing. Nor was this credit backed by any tangible assets, just a book entry. We should have learnt from the 1929 depression, but we didn’t, when the second share market failure and collapse, it caught many, especially those who had borrowed heavily to ride the gravy train. It also caught me completely unawares, and wiped out all my savings which were in the form of Life Policies. The sum of money that I had invested, was to provide for my retirement, and should have bought me a home and as well, given me a comfortable nest egg. These savings were now equal only to the value of a run down small chicken coop, certainly no nest egg. However I was now wiser and richer in the knowledge of how the Money World worked. I discovered too that in the future if you wanted an easy and comfortable retirement, you had to look after yourself, and take into account cover against inflation, as it seems that it’s always waiting in the wings.

Real estate seem to be one of the prime factors in the down fall of New Zealand Finance Companies. And of course many were involved in reckless lending and many of their loans were set up to fail. The principals of good lending are not hard to follow. A sound tract record from the borrower is a good start, a reasonable input of the borrowers cash as a deposit, so that they are involved, and not able to walk away. A no deposit, interest only loan, is for clowns only, and a sure fire way to lose money, something they should have learnt at their grandmother’s knee. Any downturn and the borrower is free to walk away.

Another thing that really annoys me is the use of Sports people or other notable New Zealanders as front people who are assisting the taking in money and giving the Finance Company a gloss of respectability. Should you put yourself in this position, be prepared to accept the down side, and some of the investors may sue for recovery of their money.

Finally there is some sort of inverse law that is at work here. The more you steal, misappropriate, or lose through sheer incompetence, the lighter the penalty. The law should be changed to allow the recovery of monies that has disappeared into family trusts, or to close family members, no matter how well hidden.

This only leaves one further section involved and who should be shouldering some of the blame, and that’s the Investment Advisers. What a miserable bunch. All they seemed to be interested in was the commission they received. They seemed to be more interested in what they personally could make out of the investment, rather than if the placement was safe. Sadly in too many cases it wasn’t

Comments are closed.