There seemed something strangely apt about the power going out on a lecture about the current Treasury/government craze for “wellbeing”
(Having said which, I expected the lecture itself would be interesting and stimulating – Arthur usually is even when, as often, I disagree with him. I hope it is rescheduled.)
Out of the blue the other day, I received a copy of a new book by Simon Burnett, a New Zealand journalist resident in Germany, about an episode in recent New Zealand financial history that I’d almost entirely forgotten.
Blunder: How ANZ and ING squandered 800 million dollars in a Wall Street casino—and ignited a revolt of small-time investors
As the blurb puts it
Between 2003 and early 2008, fifteen thousand financially illiterate people in New Zealand were persuaded to invest their savings in packages of hyper-speculative securities. They were told that these were safe alternatives to bank deposits. The investments crashed. The shell-shocked investors, mostly elderly and risk-averse and in no position to recover from financial disaster, banded together, formed a national committee, set up regional groups, took the battle on to the streets, and won.
The securities, known as CDOs, were packed into two mutual funds (or unit trusts) managed by the New Zealand arm of the Dutch financial giant, ING. Its joint-venture partner and half owner, the Australia and New Zealand Banking Group (ANZ), was a major sales agent. When the CDOs tanked and the funds tanked with them, the ANZ and ING began a desperate cover up, blaming unforeseen circumstances. This was baloney and the investors knew it.
This is the story of the biggest, most sustained, investor revolt in New Zealand history, told not by a financial expert but by one of the ANZ/ING investors who himself took part in demonstrations. The author unravels the financial complexities that neither the ANZ nor ING apparently were aware of.
The scandal was regional, but the lesson is universal: it illustrates just what can happen when financial institutions do not check what they are investing in and pass on the risks to unsuspecting customers.
Financial commentator and economist Gareth Morgan wrote that, “For anyone investing their savings with the financial sector in New Zealand—especially with some of the biggest brands in the business—I commend this book to you as a good background on what you can expect if you do not do your homework.”
I haven’t read the book, but hope to. Too few of the episodes in our economic and financial history are well-documented, and if this book makes some contribution to such a literature I welcome it.
Gareth Morgan has written the preface to the book. There are plenty of things I disagree with Gareth about, notably financial regulation. But he has been around, and his willingness to write the preface suggests there is something to the book, as a story, even if you don’t go as far as he does on policy. Here is some of Gareth’s view.
And in New Zealand there is a sequel. In a flurry of belated regulatory responses to events here—not just the ANZ/ING debacle, but also the mass destruction through the finance company sector—a licensing regime is being brought down on financial advisers and a rewrite of the Securities Act is being attempted in order to rein in the malfeasance.
But industry’s capture of the regulator is so complete that the financial adviser
regulations are little more than window dressing. Not one of the offences committed by this sector during the GFC would have been prevented under the licensing requirements that are being implemented —indeed the worst offenders have been exempted most of the qualifying requirements the Code Committee for Financial Advisers has implemented.
There are no grounds whatsoever for the public to increase its confidence in this sector, no chance the new regulations will ensure it has a duty of care to it, and the book “Blunder II” will be required in a few years to outline why the malpractice has continued.
And were the FMA to ever investigate such an episode, we were reminded again this week that they can arbitrarily slap suppression orders on, stopping people talking about thet directly affects them and their customers – even stop them talking to parliamentary committees.
I’m pretty ambivalent on Nicky Hager too, but here is some of his endorsement
“This is why Simon Burnett has done a great service in writing this book: explaining an important New Zealand story as part of the world-wide crisis, distilling the lessons and holding ING, ANZ and their senior staff to account. He has done a huge amount of work to piece the story together and to make it into an interesting, readable book. It is also pleasing that he tells the story of the ordinary investors who complained and fought and protested, in the face of misleading information and resistance from the respectable sounding companies involved, until they found out the truth and got some justice. The book is a fine piece of investigative journalism.”
The book looks to be well-documented, and from the bits I dipped into seems to read easily enough. I suspect I would probably part company from the author on any policy implications, but probably not on the ethics of what went on.
UPDATE: In a comment below the author notes:
At the moment, the book is exclusively on Amazon as an eBook. A paperback is scheduled for the end of August. Anyone who wants to can get a PDF copy from me free. Just email me at email@example.com.