Stuff it - it's back to the mattress

By FINLAY MacDONALD

"Another sign of the commercial apocalypse familiar to keen-eyed Aucklanders is the sudden decline of luxury cars on the road."

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In the immortal words of Ray Davies, "Where Have All the Good Times Gone?" Do you know the song? It also contains the line, "Will this depression last for long?" I keep hearing it in my head every time another finance company melts down or some property developer goes belly up. It should be the theme tune of 2008.

The big freeze announced last week by Hanover "whatever the weather" Finance felt more like a foregone conclusion than a surprising development.

As a financially savvy colleague estimated, it brought the money now locked up or lost in failed and frozen finance companies to about $4 billion.

Just in terms of the missing interest payments that's a lot of oil to be taking out of the economic machine.

Finance companies love to brand themselves with names meant to imply stability, tradition and bankish prudence: Dorchester, St Laurence, Dominion, Belgrave, Geneva, Hanover.

Most of them are just manifestations of the same spiv economy that spawned the likes of dodgy property investment franchise Blue Chip and rickety "mezzanine" lender Bridgecorp, whose proprietors seem able to walk away with personal wealth intact while debenture holders take a cold bath.

It's remarkable that outfits such as Hanover and others in a similar position can unilaterally impose a "moratorium" on funds, when the reason for doing so - the inability to meet due-date payments - surely means they are to all intents and purposes insolvent.

Wouldn't a receiver be the way to go? At least that way Hanover's investors might have half a chance of getting back some of that $40 million the company's celebrity directors took out in dividends when the going was good.

Directors helping themselves is only one of the factors giving me deja vu these days. Up the road from where I live is a really big hole in the ground.

It began with all the usual fanfare of the mega-development: billboards boasting of its high class mix of retail, restaurants, cinemas and apartments, advertisements and fancy websites recruiting prospective tenants and the kind of earth-moving logistics you get when you dig down six storeys before you start building up.

Well, the earth definitely moved but who for is another matter. Right now the hole is filling up with rainwater not money and there's been a conspicuous lack of action on the site for months.

Those of us who remember living in Auckland in the aftermath of '87 are all too familiar with this form of urban blight.

For years - decades in some cases - stalled or moribund developments (many of which should never have been given the necessary council consents in the first place) bequeathed great gaps in the cityscape, usually taken over as makeshift car parks, many of which turned into permanent car parks - obviously one of the surest returns on investment in a city held to ransom by lack of public transport.

Another sign of the commercial apocalypse familiar to keen-eyed Aucklanders is the sudden decline of luxury cars on the road. As someone once observed to me, you can track the fluctuating fortunes of the property sector by the number of Aston Martins and Bentleys parked outside the fashionable eateries.

In June, a luxury car auction put a whole lot of expensive European engineering under the hammer.

News reports alluded to many of these status symbols being up for sale after the original owners "defaulted on repayments", but the scuttlebutt was that every single one of them "belonged" to a property developer.

No doubt the paper trails were complex but in the end the cars will have belonged to the very same finance companies that chose to expose their investors to the risks of funding the kind of projects dreamed up by guys with a taste for Ferraris and Lamborghinis. Maybe that explains the car parks.

I'm not the first one to say it by any means, but there's a distinct whiff of 1987 in the air these days. Financial journalist and commentator Bernard Hickey has even dubbed this year the "ground zero of a [property] market collapse in the same way that 1987 is seen as the year New Zealanders fell out of love with the stock market permanently".

This surely puts us in a bind. Having abandoned shares, so the conventional wisdom goes, Kiwis have tended to put all their investment eggs in the housing basket.

But if Hickey's right and the current decline in real estate values is as dramatic as some are saying, where's your average punter going to squirrel away their savings now? Not finance companies. And it seems unlikely we'll become a nation of born-again equity investors, either.

Our share market has been simultaneously neglected and exploited since the 87 crash, to the point where its total capitalisation is smaller than a single large Australian listed company.

Things have got so dire the government is even considering some kind of rescue package to bulk up the NZX before it becomes unviable and our entire financial services industry shifts to Sydney.

Maybe the best investment opportunity right now would be a mattress stuffing your savings under one looks like a safer option than most.