Red Alert

Archive for the ‘commerce’ Category

Assets and Elbows

Posted by on March 1st, 2012

Can the Government tell an asset from an elbow?

Had it thought through the fatal flaws in its partial privatization drive, or has it been taken by surprise? Hat tip to Clayton Cosgrove for bringing SOE sale issues to the fore. Here’s a potted summary of some emerging commercial and economic development implications:

– When the SOE’s are partially privatised they become companies with a partial public shareholding, regulated by commercial law and not the SOE Act. They are no longer SOEs. They no longer have the Crown’s good corporate citizen obigations. Elbow #1.

– That is why the s9 Treaty Clause debate is so fundamental. Iwi are 100% right to be outraged that the Crown’s obligations under the Treaty of Waitangi could be sold down the river (literally). If the Crown’s response is to indemnify the private investor and bear 100% of the ongoing Treaty obligation, then the taxpayer is effectively subsidising the private investor. Clayton nailed this last week. Elbow #2.

– Minority shareholders rights include the ability to invest in future profitable expansion plans. Dilemma for Crown: pony up its 51% of those future capital requirements or face equity dilution below 51% and loss of residual control. The Govt’s response has been to hedge how much it wil initially sell. Does 45% leave it enough of a buffer? For how long? How long is a piece of string? How does this affect its sale proceeds? In a rare moment of frankness Bill English fessed up that those proceeds are only a “guess”. You bet they are. Elbow #3.

– Magically the Government’s new-found forecasts of SOE dividend loss are not, apparenty. These were shamefully omitted from the Pre-Election Economic and Fiscal Update (PREFU) because they were apparently too hard to calculate. They have since been found in a bottom drawer and Lo! they show there will be precious few future divvies, so little loss. Ooops Why would a private investor buy them then? Elbow #4.

– Except Air NZ of course, which will be as cheap as chips after its sad losses last year. Crazy, stupid fire sale. Elbow #5.

– Speaking of which, future takeover threats must now be managed. Minority shareholders have rights. If a future merger or takeover provides them a windfall, they have the right to sell, most likely to foreign corporates or hedge funds (subject to the 10% individual cap, if any). What would the Crown do in the face of such temptation? Could it face legal action from minorities if it blocked such a future sale? How is the public protected from future leveraged asset stripping? Elbow #6.

– Potential cross-shareholding complications arise, as confirmed by the Chair of the Commerce Commission at the Commerce Committee hearing this morning. (I can’t comment on the Committee’s views but can on the issues diiscussed in public hearing). Lets say a foreign energy company bought the maximum allowable shareholding in each of the 3 SOE generators – risks of information pooling, coordination and anti-competitive behaviour would need to be policed by the Commission. At best there would be a lag while consumers suffered and prices rose. The Crown itself would have to be subject to Commission oversight in this regard. Sound complicated? Elbow #7.

Back to the original dilemma: did John Key know about all these issues when he started this privatisation crusade? If so, why was the Government not more transparent about them all before the election – with the public and even with its potential coalition partner?

Oh yeah, I momentarily forgot. It’s politics.

That being the case, lets fight this crazy plan to the last comma.

Explaining Netflix to Simon Power

Posted by on August 10th, 2011

Commerce Minister Simon Power drove through the Copyright Bill a few months ago. It gets enacted on 1 September, but as of tomorrow illegal filesharing will count towards penalties. Labour supported it in order to keep the termination clause inactive.

We will be releasing new copyright policy soon.

Today in the House Simon was asked by Gareth Hughes from the Greens and myself what he was doing to promote alternate business models which meant people could download material legally without being pinged by the new copyright law.

Nothing was the answer. Then he was asked about Netflix. What? said Simon. Never heard of it.

Well, he should have, He’s the Minister for goodness sake. He’s clearly not interested in the issues and unconcerned at the consternation by thousands of people out there who are worried they, their children or their organisations (schools, libraries, universities) will become criminals for seeking out online material that just isn’t available legally.

So here’s some info for Simon on Netflix. It’s a video and game streaming service delivered online. It’s got more than 23 million subscribers in the US and Canada.

 It’s not available here. But it’s overtaken Bit Torrent in the US for downloads. Bit Torrent is one of the major sites where you go to get content and download it for free (and illegally).

At Netflix you pay. Not much, but you pay (A streaming-only, all-you-can-watch monthly Netflix subscription costs just US$9). And it’s doing really well. It’s a new business model and its taking off. Just the sort of thing we need in NZ.

Why can’t we? Well one reason would be the ignorance and disinterest of this government in how technology is changing the way people do things.

If we were in government we’d be pushing hard to make NZ an attractive place for a business like Netflix. Giving people a real alternative to downloading films and other content illegally for free. Now’s the time to be doing it. But Simon Power didn’t even know it existed.

So much for a forward thinking switched-on government.

Gareth asked a bunch of questions about what the government had done to prepare people for the new copyright law. Nothign much was the gist of the answers. Simon Power #fail

InternetNZ (Internet New Zealand Inc) has launched a new website to help people and organisations get ready for the new copyright law

Why Key needs to get offshore advice on broadband

Posted by on April 21st, 2011

I’ve known Bruce Parkes for years. Straightshooter. Like him. Always knew where he came from. Believed Telecom should use it’s superior market position to slow competitors entry.

But with the High Court judgement quoted below showing how he illegally tilted the playing field in Telecom’s favour he can not be the principal policy advisor on a plan which abolishes regulatory oversight of Telecom’s broadband. It gives them a blank cheque to overcharge much of the country for a decade.

Even before the court decision the sector was revolting. This revelation means that there needs to be a quick expert inquiry into both the decision to favour Telecom and the process that resulted in a very unusual decision.

Because of the vested interests involved the expert(s) will have to come from offshore.

The judgement said interalia:-

The senior Telecom executive named by High Court judge Rodney Hansen in his judgment penalising the telco for historic breaches to Commerce Act, is now a senior civil servant with oversight of the government’s broadband investments.

Bruce Parkes is currently Deputy Secretary at the Ministry of Economic Development for the Energy and Communications Branch. Among his responsibilities, according to his profile on the MED website, are ICT policy and the Ultra Fast Broadband plan. “In conjunction with Crown Fibre Holdings, this group will continue to implement work on the ultra-fast broadband policy, with the immediate aim of settling initial negotiations with potential providers,” reads the profile.

The Financial Elite have Gambled away our Future

Posted by on January 29th, 2011

Yesterday’s Press Editorial welcomed the PM’s announcement on the beginning of National’s privitisation programme for our country’s assets with the words “John Key was able to demonstrate…the value of his background in the financial industry”.  Excuse me?  Did the Press miss the Global Financial Crisis, where “the over-paid heroes of Wall Street and the City worshipped the gods of globalisation, financialisation and speculation”?   The quote is a teaser for the best of the five books I read over the summer break: “The Gods that Failed: How the Financial Elite Have Gambled Away our Futures” by Larry Elliott and Dan Atkinson.  The first edition of the book was subtitled: “How Blind Faith in Markets Has Cost us our Future”.  The second edition (published in 2009) has an extra chapter, which as one reviewer said could have been titled: We Told You So.  The authors of this book are economics editors, Elliott with the Guardian and Atkinson, the Mail on Sunday.

The metaphor that drives the narrative is inspired by the twelve gods of ancient Greece that lived on Mount Olympus.  Elliott & Atkinson have styled the super-financiers and the international organisations, (central banks, IMF, World Bank, WTO), the “New Olympians” and the twelve gods of the modern Mount Olympus: globalisation, communication, liberalisation, privatisation, competition, financialisation, speculation, recklessness, greed, arrogance, oligarchy & excess. 

“Greek mythology provides plenty of raw material for a book about the failings of modern financial markets.  There is the story of King Midas, who found the ability to turn all he touched into gold a curse. The tendency of markets to veer between the wild optimism of booms and the manic depression busts is akin to the life led by poor Persephone, condemned to live every six months of every year in Hades. But Pandora – a gift from the gods whose beauty belied her baleful influence on the lives of mortals – makes the best metaphor.”

As they said August 9 2007 was the moment the lid came off the modern version of Pandora’s box.  And the rest is history, which is why I believe this book must be read, because unless we learn the lessons of history, we condemn ourselves to repeating it.

This book is well-researched and easy to read.  It contains a chapter called ‘Last Tango on Wall Street” which has a very simple explanation of how the New Olympians (our Prime Minister’s background the Press values so highly) found ways to make money out of nothing – creating securitised financial products like “collateralised debt obligations” out of the subprime market and then hiding the risks behind AAA rated institutions.  The New Olympians made personal fortunes with bonuses they never had to repay when it all turned to custard.  And they were happy to see the taxpayers pick up the tab for their trillion dollar insanity. 

I conclude with this quote: ‘Speculators may do no harm as bubbles on a steady stream of enterprise.  But the position is serious when enterprise becomes the bubble on a whirlpool of speculation’.  That was John Maynard Keynes in 1936.  When will we ever learn?

Currency Wars: Seismic Shift Approaching?

Posted by on November 18th, 2010

There is a very interesting article carried by today’s Dom post from Edmund Conway at the Telegraph: “Lurching between extremes at epoch’s end”

Conway argues that the failure of the recent G20 meeting to resolve the current impasse on currency imbalances might be seen as an important marker point of the century -a moment when the global financial system tipped from order to instability.

Underlying this are several crucial factors:

  • US and Chinese inability to see a middle path on quantitative easing (“QEII” -driving down the value of the dollar to rebalance the US economy away from its yawning trade deficit) vs Chinese determination to hold the value of the yuan down to maintain export competitiveness (and the resulting buildup of surpluses available for reinvestment in Western assets).
  • The increasing strain faced by the largely (but not entirely) free floating exchange rate system as more countries explore altrernatives.  Conway likens this to the end of the Bretton Woods system – a once-in-50-year-shift.
  • The underlying shift in economic power from West to East, from the US toChina.
  • The increasing polarisation in US politics as it tries to cope with adjustment – notably the anti-free trade positioning of the Republican Right “Tea Party”.

He predicts two possible endgames;

  • another financial crisis leading global leaders to forge a new economic concensus (a ‘coherent international monetary system”).
  • or a period of chaos as “hegemonic stability”underpinned by the US breaks down.  That would indeed make the GFC look like a tea party.

If Conway is right, and there is a non-zero chance that he is, then New Zelanders must ask the question “what is our plan B” on international finance?  What if the assumptions of normality no longer hold?

Labour has already proposed a moderate but definitive programme of monetary reform, including a rewrite of the Reserve Bank Act, complementary monetary policy tools and more tactical exchange rate intervention (a “dirty float”).  This is predicated on continuity of something like current international conditions.

If chaos breaks out and the tradeability of our dollar is in jeopardy, or if there were huge capital flows into NZ (as a safe haven or a punt outside the USD), or of capital flight as risk averse traders retreat to the greenback or gold, what forward planning has been done to anticipate this?  I would guess, none in the Beehive and not much at the RB.  At the very least some transparency would be helpful.

Once again it looks like it is left to Labour to ask the tough questions and come up with some answers.

More bad economic news

Posted by on October 21st, 2010

No amount of National trying to reinvent the historical record can detract from the ongoing evidence that the “recovery’ is in trouble and that they have no plan for growth and jobs.  Here’s the latest data:

“Consumer confidence has fallen in the latest ANZ-Roy Morgan Consumer Confidence survey and a nosedive in confidence has been recorded in responses to a question regarding whether it is a good time to buy a major household appliance.

The survey’s main confidence measure eased three points to 113.6 and its current conditions index dropped 11 points to 92.3.

The current conditions index has dropped below the 100 mark for the first time since December 2009 and is at its lowest point since August 2009….”

Judicial Inquiry into SCF now urgent – NZ Herald

Posted by on October 20th, 2010

Fran O’Sullivan has written a very strong opinion piece on SCF in the  NZH here.

“The credibility problem that Feeley faces is that after four months investigating Hubbard’s smaller entities, he has still to make a decision on whether to file fraud charges against the SFO founder on that score.

When Feeley announced his initial Hubbard probe he went in with all guns blazing. But after several weeks of saying the SFO was close to making a decision, nothing has materialised.

Hubbard has major beefs with the process.

He has also taken issue with the way the statutory managers who have control of his own affairs as well as Aorangi Securities and other small entities are managing affairs. “It is like the way the Nazis treated the Jews; they grabbed all their assets under trumped-up charges. You have to wonder who the National Government will pick on next.”

There are too many layers of regulators, too may issues around the statutory management process, too many issues about the role of the Securities Commission, and frankly too great a contrast between the government’s handling of SCF and the plethora of other finance company failures, many with much more obvious concerns apparent to all.

One commentator to Fran’s piece says as follows:

“Just as intriguing. Why isn’t Feeley taking the same approach to Hanover, BridgeCorp, Hanover, Blue Chip, Hanover, Strategic, Capital & Merchant, and . Hanover? These are all prima-facie, far more obvious instances of self interested activity and related party dealings. Keep up the good work Fran.”

Or  is there something else going on?   Selective leaks from inside sources to settle old scores?  A sad attempt to bury a frail old man while he is still alive?

Of course we cannot know everything about SCF.  No-one does. 

Only a full, independant judicial inquiry can answer these questions.

$300+ million wasted on SCF bailout?

Posted by on October 13th, 2010

New information indicates at least $300 million of taxpayers funds may have been wasted by Bill English when he turned down recapitalisation offers of SCF, leaving the taxpayer with a much larger liability.

If there were good reasons for this apparent fiscal lunacy, lets hear them rather than hide behind mock commercial confidentiality and “public interest” grounds.

Part one of today’s House question is here and part two is here.

Unlocking Our Potential

Posted by on October 4th, 2010

The Canterbury Earthquake, terrible though it was, reminds us of the courage and resilience of New Zealanders in a crisis. 

 If only the same courage and strength could be tapped as part of our normal ‘economic development’, NZ would be able to unlock enormous untapped potential.

 That same courage was evident in many of our forebears: those who voyaged to NZ by waka or ship, and those hacked down the bush to form arable pasture (often on slopes so steep it should not have been touched, but their courage was undeniable).  

 Tapping into that same strength of character to unlock future potential is part of the task that lies before us. 

 Our world is changing.  The old solutions will not work for tomorrows problems.  The old certainties have gone.   The era of guaranteed markets in the UK for our sheep and beef has gone.   The era of free and easy credit has now gone.  

 We are told we face a ‘decade of deleveraging’.  All around us we see growing signs of despair.  

 Just as in the 70’s we were called upon to diversify our markets, in the 80’s to deregulate our economy, and in the 00’s to rebuild our torn social fabric, Labour is now called upon to rise to a new challenge in a new era. Just as Mickey Savage did in the 1930s, we are being called upon to find a better way.

 NZ is currently meandering through the aftermath of the global financial crisis.  We are beset by malaise.  We lack confidence.  We appear unable to define our own future, and even lack awareness of our own potential and character.

 So NZ falls back passively on its proximity to larger Asian growth centres, its traditional bulk agricultural base, and its relationship with its nearest neighbour Australia.

 These are undeniable strategic advantages, but if any are a substitute for owning our own future, they will ultimately undermine our national wellbeing and identity.  

 Our relationship with foreign investment has to change.  As it stands we are becoming more and more deeply indebted to foreigners.  We have been through a phase of selling state assets to cover the interest.  We are now selling our land at the rate of dozens of rugby fields a day.  But still our national debt keeps rising. 

 It was not primarily ‘the government’s’ fault.   Most of this debt is private debt.  Most of it fuelled the private binge on property consumption (it was never really ‘investment’ despite the temporary up-cycle in which much of it happened).

 That we need more foreign investment is undeniable, but it must be channelled into genuinely value-creating and productive activity and not simply transfer the ownership of existing assets to foreigners making our future income deficit worse.   

 A new conversation must begin – one that starts from the proposition that we wish to own and govern our own affairs.

Mr Botherway Must Step Aside

Posted by on September 21st, 2010

The Chair of the Financial Markets Authority Eastablishment Board, Simon Botherway, now has no choice but to step aside pending the outcome of the Ombudsman’s inquiry into the mangament of his potential conflicts of interest in placing Allan and Jean Hubbard into statutory managment.

The public cannot understand how the Securities Commission took this step reportedly on the basis of a single anonymous complaint, timed shortly after Mr Hubbard transferred the bulk of his remaing assets into SCF to protect investors.  

Further, the Ombudsman must widen the terms of its inquiry to include questions around any potential or perceived conflicts of interest around Mr Botherway’s long standing business relationships with Mr George Kerr, Director of Torchlight Fund, one of the primary beneficiaries of the taxpayer funded bailout of South Canterbury Finance depositors.

These associations are reportedly of long standing and reportedly included at Spicers Portfolio Management and at Brook Asset Management, as well as in relation to several other funds.  Mr Kerr is also a Director of Pyne Gould Corporation, which has announced that it is seeking to set up a “heartland bank” centered on rural South Island lending. 

It must be totally transparent that neither Mr Botherway nor any of his interests have any ongoing relationship whatsoever with this proposed new bank.      

In short it is imperative that if wide ranging financial markets regulatory powers are to be concentrated in the hands of a single regulator, the holder of that office must be beyond reproach, with an impeccable record, and no possible or perceived conflicts of interest with former, current or potential business associates.

Mr Simon Botherway, who was John Key’s former Deputy at Bankers Trust, must now step aside from from the FMA Establishment Board Chair pending the outcome of a broadened Ombudsman’s inquiry.

Furrther, the Key Government cannot now clear the air on SCF withut a full and independant judical inquiry into the circumstances leading to its recievership and New Zealand’s largest investor bailout.