Jim Anderton, MP
Leader of the Progressive Party MP For Wigram
Ministerial Statement
SPEECH NOTES
This side of the House strongly endorses the need to provide security to our financial system.
The measures that have already been taken bring to mind that old story about a bank being the kind of institution that
offers you an umbrella in the sunshine and takes it away in the rain.
The guarantees the government has announced have a similar quality: I agree with the minister of finance that the
likelihood of the guarantees ever being called on in anything approaching the full amount is extremely remote.
But if the guarantee were not available, the chance it might be needed is so much greater.
I would like to quote from this year's Nobel prize winning economist, Paul Krugman, who wrote in the Guardian on
saturday:
I'm tempted to say that the crisis is like nothing we've ever seen before, but it might be more accurate to say that
it's like everything we've seen before, all at once: a bursting real estate bubble comparable to what happened in Japan
at the end of the 80s; a wave of bank runs comparable to those of the early 30s; a liquidity trap in the US, again
reminiscent of Japan; and, most recently, a disruption of international capital flows and a wave of currency crises all
too reminiscent of what happened to Asia in the late 90s.
There are a couple of points he mentions that the world needs to take on board as a lesson from the Great depression as
we handle this crisis.
First we need to re-learn the lesson about what happens when the financial sector is under-regulated.
Our financial system here in New Zealand is strong.
But I am very pleased we have our own bank now.
And I am convinced that we need to better regulate our financial sector.
The Reserve Bank Act needs to be changed so that we never end up needing the New Zealand equivalent of a giant bailout
for the banking sector.
The Reserve Bank only controls the price of lending. There are no reserve ratios that control the level of bank
liquidity. When a debt bubble takes off, all our Reserve Bank can do is put up interest rates.
But that attracts more overseas lending, which therefore continues to fuel the bubble - as happened in our housing
market here for several years. It also overvalues our dollar and increases the deficit in our account with the world
because it gets harder to export and easier to import.
The failure of many of our finance companies shows that interest rates in the New Zealand economy were not well-matched
to the odds that investors could lose their money. When anyone could start a finance company, the savings of many small
investors were too easily destroyed. Even responsible finance companies were affected.
We need to make monetary policy focus on wider criteria than inflation, and get it to also address factors like the
balance of payments, the rate of foreign exchange, the stability of the housing market and employment.
We need to strengthen Reserve Bank controls on the financial system. We need to ensure that the financial system runs a
properly diversified loans portfolio and has systems in place to ensure large risks are spread and that the financial
system has sufficient equity capital available in relation to the level of risk undertaken.
And we need to ensure off-balance sheet transactions are made explicit in financial accounts.
Transactions such as the sale of derivatives that have allowed risk to be repackaged and resold have hidden the systems'
exposure to potential default.
It is in the nature of contingent risks that they can't be defined precisely, but they should be disclosed so that the
financial system can adequately measure the soundness of the risk and adequacy of capital provisions.
The other point I want to make is that the whole world has seen the importance of intervening to bail out the system
when it is crisis.
And we ought to learn the lesson that governments also have a role to intervene when people are in crisis. Around the
world, around a billion people live in extreme poverty. Why isn't there a coordinated global response to end that
crisis?
And we need to think about the pro-people response that helped New Zealand and the world out of crisis here in the
thirties.
The first Labour government ended that crisis with a massive increase in state housing, building schools and hospitals,
and increasing the unemployment benefit many fold.
People earned more, so they spent more.
Business benefited from the increased expenditure on infrastructure like roads and rail.
Giant kiwi businesses like Fletchers were built by the state house building programme.
So we need to learn the lesson of the past as we confront the global financial conditions today.
ENDS