South Canterbury calls in receivers

This outcome should come as no surprise to anyone. The truth about high margin lending is that it carries significantly higher levels of risk – and we just are not in the right environment to reward that risk.

The management of this risk requires acute matching of assets and liabilities – the former reliant upon investor confidence & investor greed.

So – who is to blame for this debacle? Is it the managers for failing to accurately match SCF’s debtors & creditors? Was it the investors for blindly pursuing higher returns – despite the repeated warnings about the commensurate risk? Was it the financial advisors lured by commissions as payment for their referrals? Or was it the Government for providing an unfavorable insurance policy [from a taxpayer’s perspective] for investors?

I guess responses to these questions will come out in the wash… although I can’t help feeling less sympathetic for investors motivated by blind faith and / or greed, and concerned for the financial advisory industry bracing itself for yet another blow of confidence.

As for the road ahead for SCF: you simply can’t operate a financial institution without the confidence of depositors… leaving the receivers with only one real option

There seems to be a few misconceptions on the purpose of the deposit guarantee scheme.

The DGS was introduced primarily to stop a contagion-related run on banks. It was impossible to introduce such a scheme without covering non-bank deposit takers - effectively that would of been the end of such institutions given the prevailing mood of late 2008.

It remains to be seen whether the government (tax payer) ends up making a loss or a gain out of fees collected less calls on the guarantee - but in reality, that is merely consequential to the original purpose: to prevent widespread collaspe of the financial system.

Carry on...

Hey, Independent Observer, after the government guarantee, what was the risk?

Yeh Yeh Kimble - you're right. There was no risk to the SCF punter

I guess the risk was off-loaded to taxpayers, who assumed that the government had completed adequate due-diligence on those eligible to recieve the DGS.

Unfortunately I disagree with "DGS's" comments above - the government should have been more discerning with whom they offered the DGS to. Any rationale of financial-system-protection was [admitadly with the benefit of hindsight] really an example of selective protectionsim, that deferred yesterdays problems into tomorrows catastrophe. It has also sent a very strong message to the market that it's OK to fail (as long as you're big)