Sunday, 26 October 2008

Cullen has put NZ financial sytem in grave danger

Michael Cullen's belated move last week to guarantee deposits in the wake of a major world credit meltdown is his dumbest move ever as Finance Minister in 9 years and puts our banking and financial system at massive risk.

We needed a deposit guarantee system but it needed to be properly put together, with guarantees for interbank lending, which is the real crux of the credit meltdown, and a guarantee of deposits at our stable banks, not finance companies, which have a much higher risk and offer higher interest rates than banks.

In the haphazard way in which it the deposit guarantee has been constructed, it has already distorted various financial markets and had a run on money coming from banks, managed funds, the New Zealand stockmarket and proceeds from recent house sales and going towards risky and dodgy finance companies.

And why wouldn't you put your money into finance companies?

They now have the same guarantees as the major banks but with higher returns !

Cullen has now produced a scenario that the banks, which were receiving money from finance companies because they were too risky and most of them dodgy, are now unfairly put at risk themselves as depositors money is removed from their vaults to go to higher return finance companies.

This is a nightmare unfolding and in effect puts the major banks at a huge disadvantage. They would have been more financially sound had Cullen done nothing.

Unfortunately Michael Cullen can do little to ameliorate the problem because hundreds of millions of dollars have already been transferred to finance companies and it wouldn't now be prudent to backtrack, practically and of course for himself and Labour would be politically disastrous.

What he could easily do now, since he has interfered already, is direct finance companies to limit their future interest rates and therefore stem the run on banks.

Unfortunately we have a man who is pig headed, does things politically instead of for practical reasons, is way out of his depth and experience and far too slow to react.

The man the he criticises, far from being an opportunist, is able to make the sorts of decisions that Cullen should have made; quickly, timely and with far more experience and accuracy.

As a currency trader, timing for John Key was crucial; not months, not weeks, not days, not hours, not minutes but seconds separated him from making a bad or a good decision.

And he was working in Trillions of dollars everyday, so today's economic climate is comparably like a walk in the park.

We all know how good he was at his job.

Cullen is not yesterdays man, he simply was never up to the job of Finance Minister in the first place and needs to fall on the sharp corners of his faux gold edged framed Doctorate of History degree before he ruins us financially.

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