Baffling move heads us to investment limbo land

BY RICHARD LONG

OPINION: Poor Bernie Madoff. If he had been running his giant Ponzi scheme in New Zealand, he would still be driving round in his Porsche, living it up large, and thumbing his nose at the investors he defrauded. Instead, after last year's crash, he was arrested in no time by the American authorities, prosecuted, and flung into the slammer for 100-odd years.

The finance house and corporate wide boys in New Zealand were not quite on the scale of Madoff, and by and large were not running Ponzi schemes, but they are still at large after thousands of Kiwi mum and dad  investors have lost their life savings in ventures that were sometimes highly doubtful.

If and when we see belated prosecutions here, the penalties for our corporate crims are not likely to be of the Madoff scale, and nothing like the life of penury which has suddenly and tragically descended on many of their clients, including many superannuitants.

Just about everyone agrees stronger supervision of the investment area is needed, with greatly increased  penalties, but action on this has, for some incomprehensible reason, been delayed till just before next year's election.

Presumably the aim is to launch a toughened regime in October next year, in order to campaign on the hustings on ''getting tough on corporate crooks'' and ''safeguarding mum and dad investors''.

Anything is better than having a campaign focused on the effects of a GST increase, or that folksy television promo of Finance Minister Bill English promising ''us Kiwis can beat those Aussies'' when just about everyone, Reserve Bank governor Alan Bollard included, knows the figures then will show us losing further ground  against the Ockers.

Commerce Minister Simon Power acknowledges the need to rebuild investor trust in capital markets after the upheavals of the global recession and finance house collapses. But the Capital Markets Taskforce has spent 18 months on this, and now we seem to be headed for a limbo land of another 18 months before action.

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Capital Markets Taskforce member Rob McLeod observed the Government approach does not exactly have rocket fuel in the tank. Mr McLeod, managing partner in Ernst and Young, could be excused for being a little jaundiced about task forces.

His major tax review in 2001 was basically torpedoed on launch by finance minister at the time Michael Cullen because it floated the prospect of a tax on housing. The other valuable material it contained was overlooked because critics focused on that one controversial aspect.

The Don Brash 2025 task force (on catching Australia) was recently torpedoed for delivering a similarly unpalatable message.

The Government can hardly complain now if burned investors, whacked by the 1987  market crash and again last year, stay away from the sharemarket and finance houses and instead head into the area the Government would like them to steer clear of - the property market.

The canny investors who put their savings into property as a retirement vehicle have largely safeguarded their capital, while many others have seen their savings evaporate.

It might not be what the economy needs, which is investment in assets to improve economic growth, but till investment safeguards are put in place, property is likely to remain an attractive option.

One prospect is a strengthened and streamlined regulatory body combining aspects of the Securities Commission, the Companies Office and the stock exchange, the NZX. At the moment much seems to fall between the cracks of these organisations.

Oversight is inadequate and getting our own mini-Madoffs into court takes an eternity. Another prospect is to broaden the depth of the market to make it more attractive. An obvious move, recommended by the task force, would be to partly sell down some of the state owned enterprises, which would be trusted by mum and dad investors.

The trouble is that the Government, getting flak for breaking its GST pledge, does not want to draw more fire for breaking its pre-election promise not to privatise SOEs. A part selldown makes economic sense but that  may have to be put before the electorate for approval at next year's election.

Most OECD countries have partly privatised their SOEs. Even communist China has done so. But that would  not stop the Left from marching in the streets against it here.

- © Fairfax NZ News