Many of those whose who remember the financial crisis of the 1980s, particularly farmers and people from rural communities, will have retained a healthy caution when dealing with financial institutions. The major restructure of our financial and economic systems, in what became known as Rogernomics after Finance Minister Roger Douglas, included the deregulation of commercial banks and lending institutions. While modernisation of this sector was long overdue, there were unintended, and largely unpredictable, consequences for the next two decades culminating in the collapse of South Canterbury Finance in 2010. The failure of this major finance company ended up costing New Zealand taxpayers close to $1 billion bailouts for many investors and about $120 million for others who were not protected by a government investors guarantee scheme.
In spite of an avalanche of rumour and wild guesses, criminal dishonesty was not the main cause of the collapse. There were a few prosecutions of senior officials, most of whom were acquitted. It was in fact the inadequate regulatory system that allowed poor investment decisions, equally poor record keeping and the ability of commercial bankers to get too closely involved in the business of their clients which they often knew too little about. Those conditions still exists today and there are worrying indications that some banks and lending institutions are on the verge of repeating the errors of the past. There may well be nothing in it but over the next month or so I will be investigating several of these developments.