Parker David: General Debate 
Parker David: General Debate 
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Hon DAVID PARKER (Labour) 
: 
 Before I speak about the South Canterbury Finance situation I add my thoughts to those of others about the people in Christchurch. I certainly agree with the comments of previous speakers on that issue. 
I want to address the issue of South Canterbury Finance and a couple of the things that need to be looked at further. First of all we need to think about why there was a need for a Crown guarantee. We needed a Crown guarantee in respect of deposits to financial intermediaries like banks and finance companies because without the wheels of finance turning the economy quickly grinds to a halt. The potential damage to the operation of the wider economy from the wheels of credit completely seizing up were perceived to be such a risk not just in New Zealand but in many countries around the Western World that Governments saw a need to intervene and to give some confidence to those who were investing in those institutions so that the institutions themselves could keep lending. The Government of the day—and I was part of it and am happy to take responsibility for this—thought the same as Governments overseas: that it was a necessary step to take. We did not want to do it. We saw that distortions would be caused and we saw that moral hazard was being created but none the less we thought that it was a necessary step to take. I agree with the Deputy Prime Minister Bill English when he says that overall it was necessary and even with the benefit of hindsight it had to be done. 
People could ask why we did not stop at banks but why should we have stopped at banks? Why should we have preferred the interests of banks over those of finance companies? No financial institution can sustain a run on the fund whether it is a bank or a finance company so I do not think a valid criticism is made there. But we should think about what we were trying to do. We were not trying to guarantee what was already lost. The terms relating to the grant of those guarantees meant that we would not prop up things that were already broke. 
I think one of the questions that needs to be answered here arises out of what the Deputy Prime Minister said today. He said that as 2009 evolved it became clear that the lending of South Canterbury Finance prior to the date of the guarantee was not of high quality. The firm had doubled the size of its book the Minister said to about $2 billion by the time of the guarantee and he essentially says a lot of that lending was shonky. Well there are some questions that need to be answered about that. Who knew that and when did they know and who should have known? We need to look at what the directors knew. What did the trustee company know? There is a statutory trustee for a finance company and in this case I think it was Trustees Executors and Agency Co. of New Zealand (Ltd). What did that company know? What should it have known had it been acting prudently? What did the auditors know? These organisations have auditors—what did they know? What responsibility did some of the valuers have? Were there cosy relationships with some of the valuers acting here? A lot of questions need to be answered. I think one of the reasons why I am perturbed is that some of these questions have not been answered already. 
There is a question for me as to whether the guarantee was enforceable in the first place. If the guarantee was obtained by misrepresentation on the part of the finance company maybe Fran O’Sullivan is right and things should have been reopened. Maybe there should have been a look at whether the depositors—who had effectively if what Bill English said is correct already lost their money by the time that the guarantee came in—should have been forced to share in the pain. And maybe the firm should have been put into statutory management in order to try to find a fair outcome that saw depositors recapitalising in part the institution. Maybe there should also have been a look at whether some of the preferential transactions that had been entered into since the date of the Crown guarantee were appropriate. 
I think there are some very real questions to be answered and I would hope that in the fullness of time the Government sees fit to agree that there should be a full and independent inquiry here. I think there is a need to look at what has gone wrong and what blame should be apportioned. I certainly think the auditors the trustees and the directors will all be ducking for cover. If I were in their situation I would probably be ducking for cover too. But someone needs to look at whether responsibility should be allocated to them rather than all the costs of meeting the guarantee to deposit holders falling on the taxpayer. Maybe the taxpayer should be seeking some recompense from other parties that have some legal responsibility for some of the things that have gone wrong here. We will not know whether that should be the case unless there is a proper inquiry into what has gone down. 
In terms of Mr Hubbard’s role I am not ready to absolve him from all responsibility. But I would say he did put a lot of his own assets into the company to try to prop it up in a way that he probably was not legally obliged to do.