Officials’ silence, absence of chief from trial, make you wonder what it is they don’t want people to see

Treasury's butt-covering exercise over the role it played in exposing the taxpayer to a $1.58 billion payout from the South Canterbury Finance collapse should stop.

A bit of frankness over what really went down in the frame wouldn't go amiss in the wake of the Serious Fraud Office's failure to ram home fraud charges against former South Canterbury personnel over the state of the company's books at the time it was admitted to the Crown Retail Deposit Guarantee Scheme.

It's abundantly obvious that senior National Cabinet ministers, Reserve Bank and Treasury officials knew South Canterbury Finance was a dog when the Global Financial Crisis struck in late 2008.

Irrespective, the finance company was given the critical Crown guarantee, which triggered a $1.58 billion taxpayer-funded payout when the company collapsed on 31 August, 2010.

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There may have been valid reasons for the decision of the then Treasury Secretary, John Whitehead, to admit South Canterbury Finance into the Crown's guarantee scheme.

New Zealand was in the grip of crisis.

But by not calling Whitehead as a witness in the fraud trial against three former South Canterbury Finance players, the Crown prosecutors have simply put the focus back on the decision-making by the Government and senior officials in its early days in power.

In the wake of a series of finance company collapses, public depositor confidence was shaky and there was a risk of capital flight to Australia - factors which Justice Paul Heath highlighted this week when he said he could not exclude the reasonable possibility that (Whitehead) would have signed the guarantee deed on November 19, 2008, even if the Crown was "right about the alleged material omissions" relating to South Canterbury's application to join the scheme.

Notably, no applications by finance companies to join the guarantee scheme had been refused in its first few months on grounds such as creditworthiness or poor business practice.

There have been suggestions the Crown may not have wanted to open the lid on the Government's own decision-making.

The Prime Minister said frankly, "Politics isn't perfect", when I spoke to him this week about the Heath judgment.

John Key confirmed that shortly after the 2008 election, he was warned South Canterbury Finance could "go down".

Key said the warning came from Reserve Bank Governor Alan Bollard.

Key hadn't yet read Justice Paul Heath's 258-page judgment when I touched base. But he had every intention of doing so (and I suspect refreshing himself on the details) before the issue comes into focus when the Opposition asks the obvious questions in Parliament about the circumstances of South Canterbury Finance's admission to the guarantee scheme in November 2008.

There are a lot of hard lessons that should be learned from the South Canterbury Finance debacle. Yet so far, the Treasury is making a good job of avoiding full explanations for the $800 million net loss the taxpayer has suffered as a result of bailing out the failed finance company's depositors.

In retrospect, it is obvious South Canterbury Finance would have collapsed if it had not been admitted to the scheme.

Heath sheets the blame squarely on the late Allan Hubbard and his former directors for the company's collapse.

Heath wrote in his judgment that he did not believe Hubbard (or any of the accused - Edward Sullivan, Robert White or Lachie McLeod) set out to "defraud investors". But he criticised Hubbard's dominance and the failure of the co-directors to influence him to change his attitude, saying that "directly contributed to the failure of the company, and the losses suffered".

The Crown has been dilatory in its failure to call Whitehead.

But the institution itself could take a hard look at itself.

In March this year, Auditor-General Lyn Provost noted Treasury still hadn't documented its dealings with South Canterbury Finance. Nor had Treasury carried out a formal post-project review of lessons learned from the Crown Retail Deposit Guarantee Scheme.

"The Treasury's reasons for this include that: The Treasury considered many of the risks and issues arising from the original scheme when working on the extended scheme in 2009; there are now fewer non-bank deposit takers that could pose similar risks; the unique nature of the scheme limits the extent of lessons that could be applied to a future scheme; and specific lessons are being covered in detail in the work within the Trans-Tasman Banking Council (through which it works with the Australian Treasury on crisis management arrangements) and the Financial Stability Key Initiative."

From a Reserve Bank perspective, former Governor Bollard outlined in his book, Crisis: One Central Bank Governor and the Global Financial Collapse, how the guarantee scheme had been quickly pulled together in a Wellington war room.

It was "an awful thing", wrote Bollard. It all took place during the heat of the 2008 election campaign. The Reserve Bank wasn't happy about New Zealand taxpayers moving to guarantee deposits but the hand of the then Helen Clark Government was forced after Australia announced a similar scheme.

It's extraordinary that the reality and context of what was happening in late 2008 was not put directly in front of Justice Heath or, for that matter, the public record so that New Zealand could learn the real lessons from the crisis.

The scheme clearly had flaws and the subsequent monitoring was haphazard.

It all begs questions about what was so out of the ordinary that the Treasury is not keen to shed sunlight in the way that the High Court and the Auditor-General would prefer.

The Treasury has to do better than this.