In that case there is either an agency problem in the firm, or the the firm itself is only a short-run entity. In either case it doesn’t really matter – unless the government commits itself to always saving finance companies.

If insurance was offered at the market rate and finance companies pick it up then there is no issue – as they would have to pay for the riskiness associated with there market structure.

The issue that we might have is that lenders don’t realise the risk associated with the finance company – in this case we need better information, which is a role of government, and which is something the Bank is working on.

Where’s the news media?

I just dont see why treasury/rbnz had to allow finance companies potentially in. All of them except the 3 that would survive anyway have already gone and artificially raising them from the dead is poor use of resources and a bad signalling mechanism. Their “assets” are generally worth zero by the time the the banks get back their first mortgage so essentially the insurance scheme is just allowing them to start a new business using exactly the same failed business model.

We are seeing developers walk away from their failed projects and buying it back from the bank at 30 cents. Now we are gonna see finance companies reflate their businesses courtesy of the taxpayer – its a rort. There is just no way the rules will stop finance company shareholders stripping subsidised money out of the companies no matter how tight the rules are. Good time to be a finance partner at rmv.