Cunliffe David: Financial Markets Conduct Bill — Second Reading 
Text is incorporated into the Bound Volume 
Cunliffe David: Financial Markets Conduct Bill — Second Reading 
[Sitting date: 14 February 2013. Volume:687;Page:7880. Text is incorporated into the Bound Volume.] 
Hon DAVID CUNLIFFE (Labour—New Lynn) 
: 
 It has been said that those who do not learn the lessons of history are doomed to repeat them and the lessons of history in the case of financial markets regulation are all too obvious. The doyens of the free market brought to us the circumstances that led to the great crash of 1929-30 and brought to us again the global financial crisis of 2008-09 and the signs in hindsight were there for all to see. 
In the United States a family pet could get a mortgage for a home. Mortgages could typically be up to 120 percent of the value of that home—that is you could take out a mortgage for more than the value of your home and get 20 percent cash as well. That toxic real estate debt which was founded on the fallacy that markets always move in an upward direction was magnified by blending with collateralised debt obligations and then expanded by multiples of hundreds through the use of derivatives that were insufficiently or inadequately regulated in that jurisdiction. 
That malaise that contagion spread across the globe and caused the near freezing of financial markets and the failure of some of the United States’ largest investment banks—Lehman Brothers Bear Stearns and the one that John Key used to work for Merrill Lynch—and the European markets followed very soon afterwards. New Zealand Iceland Ireland and many other countries were not immune. We escaped a Great Depression like the one of the 1930s by the merest whisker. But the ideas that led to that were there for all to see for some time based on the writings of amongst others Milton Friedman and their adoption in Ronald Reagan’s America and Margaret Thatcher’s Britain and in Roger Douglas’ and Ruth Richardson’s versions of liberalisation in New Zealand. The fallacy that unregulated financial markets lead to the best of all possible worlds has now been exploded. 
This bill the Financial Markets Conduct Bill has bipartisan support. It is an attempt—perhaps not a far-reaching enough one but an attempt none the less—to re-regulate those financial markets where there was inadequate regulation that contributed to that great recession. The work was started under the Hon Lianne Dalziel in the latter years of the previous Labour-led Government it has been continued I think by the current Government and it has the bipartisan support of members of this House. It has this support because it attempts to re-regulate derivatives to provide increased transparency for financial markets to regulate financial products according to their economic substance and not just their name tags and to model itself on the more thorough processes of our Australian regulators the Australian Securities and Investments Commission and the Australian competition watchdog. 
It seeks to protect retail investors it will have duties on issuers for ongoing disclosure it will set common governance requirements that will apply to all managed investment schemes and importantly it will introduce new criminal penalties in relation to serious breaches by directors of the obligation to act in good faith. These are not simply academic matters. Thousands of senior New Zealanders in particular have lost their life-savings and sometimes their homes because of fly-by-night charlatans who are now household names and their phoney investment companies which have taken money off decent New Zealanders and sold them down the river. The directors and the officers of those companies have the global jet-set lifestyle while ordinary New Zealanders have suffered seeing their life-savings taken off them and frittered away based on business models that could never have worked—on the one-way model that markets will always appreciate and that therefore the debt will always be covered by securities that are worth more and more. Nobody in their right mind not even members opposite believes that markets always act like that. 
That behaviour in future will quite likely fall subject to the criminal penalties that are now incorporated in this bill and that have been strengthened by the Commerce Committee. Much of this work comes from the Capital Market Development Taskforce set up in 2008 by the previous Labour-led Government. It developed a blueprint and an action plan for the development of New Zealand’s financial system to enhance the integrity of those markets to enhance the competitiveness of those markets and to provide more confidence for New Zealanders and it is there to seek the win-win of a capitalist system that is adequately regulated in the public interest. We in the Labour Party do not believe that markets are always bad but we believe that laissez-faire capitalism is doomed to fail to eat its own young to cripple its own markets and in the process to take down the interests of ordinary New Zealanders. And the evidence? Sixty-one New Zealand finance companies have failed in the last 4 years the latest of which—well not quite the latest now—was South Canterbury Finance which failed to the tune of $1.6 billion. When the full story is public—about what happened at South Canterbury Finance and the ministerial involvement of Bill English Steven Joyce and others John Key included who turned away a recapitalisation deal that would have limited the taxpayer to a loss of $500 million in exchange for a catastrophe that cost $1200 million; that is a $700 million stuff-up by those Ministers—heads will roll. It may have been convenient for the Christ’s College mafia but it was not convenient for the New Zealand taxpayer. The Government is on notice that the next Labour-led Government will thoroughly open the books on that disgusting case of South Canterbury Finance. And it is just one albeit the largest one of 61 finance company failures that have sadly taken the life-savings from too many New Zealanders. 
I want to acknowledge the bipartisan work of the Commerce Committee led by Jonathan Young and on our side by the Hon Clayton Cosgrove which has in a number of respects strengthened the draft bill that is now before the House. In particular I wish to commend the new general offence of giving false or misleading statements based on section 377 of the Companies Act plus new specific requirements for market operators of domestic financial product markets and amendments that extend the current bans on persons banned from operating in financial markets. The select committee has done what it could to put even more spine in this legislation but this work is not finished. Vigilance is required and as we speak one of the factors that led to the credit bubble of the last 5 years has already started again. In the face of inadequate 20th century monetary policy as we are hearing from the manufacturing inquiry we have a property roller coaster that once again is rolling down the tracks—or we might say for now rolling up the tracks. How convenient that might seem for a Government that is worried about opinion polls for middle New Zealand until it reaches the top of the track and starts screaming down the other side. Because one thing is for sure: those who do not learn the lessons of history repeat them. And if there is one lesson of financial markets it is that what goes up must come down. What goes up must come down. The property market is no exception. 
We commend this bill. It is good as far as it goes—all 500 pages of it—but vigilance is required because it is in the interests of everyday New Zealanders to know that their life-savings will be safe and secure and subject to laws that guarantee that the criminal and negligent behaviour of fly-by-night financiers will be caught that they will be prosecuted and that they will be sent to jail. That does not come too soon for the New Zealanders who have fallen foul of those lessons of history. Thank you.