Worst-case scenario, I figure that I'll have to shell out about $22 to prop up investors in the failed Mascot Finance firm. This is back-of-an-envelope stuff, spreading the $70 million that Mascot is alleged to owe its investors among the 3 million or so New Zealand
taxpayers - assuming, of course, the government has to pick up the entire bill as it is obliged to under the retail deposit guarantee scheme.
The ubiquitous spokesperson on all things finance company-related, Chris Lee, however, assures us that taxpayer liability for Mascot will be $10 million at the most - so that's about $3 from me. Much better but I could spend that where I live and help ward off the downturn in my local economy rather than send it on to Mascot debenture-holders in Christchurch and Timaru.
I have no particular insight into how well-run Mascot Finance was. A quick look at the most recent published accounts show it had upped the provisions for bad debts by about $15 million in the year to March 31, 2008 - a sensible move considering the circumstances. It also had just over $26 million invested in the gaming machine sector - probably a good recession-proof investment.
But the Mascot's slide into receivership is mostly of interest because it is the first to benefit from the deposit guarantee scheme - this is what happens when a 'contingent liability' becomes a real one.
Still, we have been warned by Treasury, who in this report speculated actual losses covered by the guarantee scheme could range from $462 million to $945 million.
In his newsletter Chris Lee argues that the guarantee scheme should come with more strings attached.
"I consider the government's guarantee to be a provision of extra capital to the banks," he writes. "Accordingly I think the government has a right to make some demands from them regarding performance. We are yet to see such demands."
I agree but Lee's argument should be applied across the board not just to the big banks.
John Key admitted on Radio New Zealand this week that "in hindsight" it was wrong to let Mascot into the scheme.
Closer scrutiny of guarantee applicants is clearly required. In the meantime there's those 80 or so other contingent liabilities to worry about.
In the greater scheme of things my $3-22 contribution to Mascot might be small beer - but it's a small beer I could've had myself.
Cheers.
David Chaplin
Worst-case scenario, I figure that I'll have to shell out about $22 to prop up investors in the failed Mascot Finance firm. This is back-of-an-envelope stuff, spreading the $70 million that Mascot is alleged to owe its investors among the 3 million or so New Zealand
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