KEY POINTS:
More lives wrecked, more people watching their savings recede and probably disappear. Hanover is the latest to founder.
In the Herald on Sunday a month ago, I said more finance companies would go broke. I take no pleasure in being proved right.
I wonder if the owners of
any of these finance companies recognise the pain they have caused - were they aware of the responsibility that they were taking on?
This responsibility extends not just to money but to people's lives - people depending on savings for a decent retirement income, saving for a car or house, or to pay off a loan.
A deposit of $30,000 may seem small to the owner of a finance company, but to depositors it is about what they are able to do with their lives.
The finance company owners may think it is all about money.
For the investors, it is about whether they can enjoy their 20 good summers of retirement or pay off their student loan. The money is just numbers - the lives are real.
No surviving finance company is immune. Not one. This is not to say that all will go under, but it could happen to any one of them.
The whole finance company model is flawed - small, highly geared companies with little transparency and even less regulation.
Finance companies seem to have borrowed short but lent long, breaking rule number one of financiers.
When their assets do not match liabilities they depend on cash from outside for their survival.
Finance company re-investment rates will continue to fall and with borrowers not paying on due dates, there will inevitably be a shortfall.
When problems strike, owners can and do walk away.
The property collapse is far from over. Many finance company loans are secured on property.
Even for non-property purchases, such as bulldozers, computer systems and cars, second mortgage security is sometimes taken on the borrower's house.
Not much of that security will be improving at the moment.
People have lost money, or are about to lose money, because they were encouraged into a finance company by a financial adviser who was paid a commission - incentivising them to steer clients in that direction rather than towards more prudent options.
In spite of some plans for finance company supervision, the Government has not even built this particular stable door, let alone closed it.
Meanwhile the horses are gazing in another paddock.
The New Zealand finance company debacle does not seem to be happening in any other country.
There are some reasons for this, among which must be the ease with which a finance company can be established here and the near lack of regulation of the sector.
Given the complete loss of confidence and the trend for falling asset values, more finance companies will fail.
This is still not an area which will get my money.
Each week best-selling financial author Martin Hawes shares his strategies to help you grow your wealth. You can email your personal finance questions to info@wealthcoaches.net or andrea.milner@ heraldonsunday.co.nz On the web: www.wealthcoaches.net
