Russell DeborahDr DEBORAH RUSSELL (Labour—New Lynn): I would like to begin my contribution to this debate by praising the Hon Judith Collins. As earlier speakers have noted Ms Collins sometimes brings home-baking to the Finance and Expenditure Committee and I can attest that it is superb. So thank you Judith Collins. We appreciate it very much. In terms of this bill what this bill does is deal with some of the way that we put our financial markets together and I'm grateful to the immediately previous speaker Mr Andrew Bayly who explained I think at quite a high level some of the nature of what is going on in financial markets. But what I would like to do in the course of this speech is try to bring this to life for people who may be watching at home. I guess dealing with financial markets is one of those topics where people's eyes do glaze over a little. Some of the stuff that we are talking about is highly complex and it doesn't often relate to people's everyday lives. Most of us never have to deal with what's going on in the highly complex financial markets. So I do want people to understand why this bill is important and why we are trying to engage in regulating our financial markets—a worldwide effort. I ask you to cast your mind back to 2008 and what we now call the global financial crisis. It's hard to say exactly where it started but the world was primed for it. The world was absolutely primed for it and it was primed for it because there had been an astonishing growth in what are now called broadly derivatives. Something that had been going on in various countries was what they call poor-quality lending. There had been a whole lot of lending—mortgage lending in particular; lending to people on their homes—and it was quite risky lending risky in the sense that banks and other mortgage issuers were lending something in the order of 100 percent of the value of homes to people.The assumption was that people would be able to cover the costs of the interest on their mortgages and so on. But they were risky and in particular when one looks at some of the stories of what went on at that time some of the lending that went on went on where families with very low incomes were nevertheless given mortgages which possibly at the time of the borrowing they might have been able to cover the interest on but if anything went awry in their lives then they simply couldn't cope. So if mortgage rates went up just a little that could be enough to sink those people on their mortgages.Now as it turns out the financial institutions knew that they were risky instruments. They knew that they were risky mortgages—the financial institutions—and of course all mortgages are somewhat risky for both the lender and the borrower. There is always a chance that the borrower won't be able to make the mortgage payments. But then from there what happened was financial institutions quite properly spread the risk. Now that idea of spreading the risk is that they would take the value of a particular mortgage and they would ask other financial institutions other banks to participate in it. So they would sort of sell a bit of the mortgage to another institution then they'd sheer off another bit and sell it to a third institution and then hive off a little bit more to a fourth institution. No it wasn't a matter of chopping it up but this all operated through pretty complex financial instruments. What happened was that banks and other institutions—the big merchant banks—built up complex layers of very very complex financial instruments. Let me give you an idea of how complex these financial instruments are. Look if we're talking about something like a swap people say Well what's a swap?". Well a swap is when one entity one organisation has a debt it has an investment it has some borrowing which has a particular stream of interest payments. They've got to make a series of interest payments over a series of months. And then another institution likewise has some sort of financial instrument on which there is a series of interest payments due and literally they swap them. And what that does is it enables each institution to get a better cash profile to plan their cash flows to plan their interest flows to plan their risk profile. That swap enables them to stabilise what's going on in their own borrowing and lending profiles.But most people don't really understand swaps and fair enough; they are complex—and that's just actually a very simple sort of financial instrument. And then from there it's not just having the swap. [Interruption] ASSISTANT SPEAKER (Poto Williams): Order! We won't be having conversations across the Chamber thank you very much. Dr DEBORAH RUSSELL: Well I'm just having the swap—but the valuing of the swap is very difficult. How do you put a value on those streams of interest flows out into the future? Well again there are ways of doing that but it takes quite a bit of financial knowledge and expertise and finance to do that. So what happened during the build-up to the global financial crisis was there were a whole lot of these complex financial instruments being built up all over the world and the risks and the interest flows and the streams of money being swapped and dealt with and sold until it became an incredibly complex structure that almost nobody could understand and nobody could value and no one knew where the risk actually lay. In fact institutions could virtually get rid of all the risk. They had no skin in the game. Then the house of cards came tumbling down and what we saw—and I'm sure that members of this House will recall this—was people literally living in tents and tent cities because they had lost their homes. Now this didn't so much happen in our own country but I have a clear memory of the tent cities in various places in the United States. Ordinary people eventually lost out. Actually a lot of the big banks got bailouts because they were "too big to fail". It's hard to go back and recreate that situation but ordinary people—ordinary mums and dads—lost their homes and often lost their homes because the house of cards came tumbling down. And it happened because so many of those institutions didn't have skin in the game.So as the world started to recover from the global financial crisis around the world regulatory authorities started to put in rules to regulate that kind of behaviour and this is what this bill is actually about. I refer in particular to the margin. It's referred to as a margin but what it is essentially is that when institutions engage in these kinds of complex financial deals they have to leave some of their own money on the table. As we all know when you've got some of your own money on the table you take much more care. That's a really straightforward thought and that's a common sort of thing. When we want someone to take care when we want real care taking we make sure that people have skin in the game and this is what these margins do.So the EU has brought in those regulations and now we need to do that too in order to maintain our access to the EU financial markets and in fact to the worldwide financial markets. That's why this bill is so important. It represents our institutions having some skin in the game and they want to have some skin in the game. It represents big financial institutions worldwide having some skin in the game. And that ultimately protects all of us and that's why this bill is important not just for the handful of people in this country who will understand the complexities of these financial instruments but for the ordinary everyday people on the street. And in the Finance and Expenditure Committee where we're told this bill is going to come we will do our best to examine the detail of this bill and make sure that we look after the ordinary people. I commend this bill to the House."