Is he going to tax the productive business in NZ so as to bailout the non-productive. Great idea JK not!!”

I think he believes F&P is still productive – again I think they need some way of making F&P reveal whether it would be solvent in normal economic conditions.

As it is still solvent now, such a debate is relatively academic 😛

I am not sure I trust government C-B analysis enough in this case. They need to work out the right counterfactual in order to sort out whether it is the right thing to do – and I’m afraid they will pick one with “too much” structural unemployment.

“my suspicion is that if it makes sense for government to buy in, it prob makes sense for private equity. however during a credit crunch like what we have this might not be the case. therefore the government could justify buying in short term, and seeking private equity to buy in after the credit crisis is over.”

Or just offer a loan to the business – if the business doesn’t take it then they shouldn’t be there in the first place …

I don’t think they asked for one – National just decided to start offering them 😛

There is no way I would have given them that advice – it was crazy 🙂

Is he going to tax the productive business in NZ so as to bailout the non-productive. Great idea JK not!!

my suspicion is that if it makes sense for government to buy in, it prob makes sense for private equity. however during a credit crunch like what we have this might not be the case. therefore the government could justify buying in short term, and seeking private equity to buy in after the credit crisis is over.

What they did was the equivalent of buying high, selling low. If they were smart they would have purchased the foreign debt at historically high NZD levels and waited for the correction. The subsequent increase in revenue would have made the pay off easier. And as an added bonus they would have known exactly what the value of their debt obligation (in NZD) was at any given time. If the NZD had subsequently strengthened their only concerns would have been (a) reducing revenue and (b) lost opportunity to purchase the debt at a better exchange rate. Id take that scenario over ballooning debt obligations AND shrinking revenue any day. They doubled down and now will pay the price.

Agreed Scott. The reason I view it as “hedging” is because the return on their sales depends on the value of the NZ$. As a result, setting up debt in this way would ensure that a lower dollar will increase their debt level but also increase revenue while a higher dollar will lower debt but also lower revenue.

I completely agree, but …

Don’t forget that there is a credit crisis – and that the inherent asymmetric information problem in the credit market is inflamed. The fact that governments can still borrow implies that they can alleviate this problem – in theory 😛