Mr Key also warned that other finance companies may go under and the government would continue to look after investors by keeping the guarantee on investments in place.
I think he meant:
Mr Key also warned that other finance companies may go under and the tax payer would continue to take on all the risk for investors by keeping the guarantee on investments in place.
Look. I had no problem with the idea that we needed to do something in wholesale markets during the credit crisis to prevent an effective “bank run”.
But the two problems with keeping this going now is that:
- This problem is gone now,
- Given the fact that funds flooded into risky assets after the guarantee there is a definite case that we should have done less.
Contrary to what Kiwiblog said that “It is easy in hindsight to say that one should not have had the guarantee scheme, but in late 2008 the wordl financial system was on the brink of possible collapse, and pretty much every OECD country did much the same as a stability measure” I think it is perfectly fine to critique the scheme.
Why? Well we KNEW there were issues with our finance firms, and we stuck them into a scheme rapidly without doing due diligence on a whole lot of the stuff. And we made this f’ing critique AT THE TIME – so we are allowed to make it now 😉
Lets just think here for a second. Effectively government was taking on all the risk, so why weren’t the insurance premiums insuring that all the return also went to government?
If it is hard to observe the price, couldn’t we have just said that people who entered the scheme couldn’t increase lending – this would have allowed the scheme to protect deposits without leading to the “increased risk taking” that has taken place.