Timaru, Allan Hubbard, the Volkswagen and the New Zealand psyche
Whenever I have the time I spend as much as an hour reading the newspaper. You might wonder what is there that takes so long to read. The real news items are either not covered or are touched on in brief uninformative paragraphs, while the pages are full of inconsequential stories that border on the personal and intrusive. But tucked away, somewhere in the back pages, there are articles that may have significance beyond the daily gossip. There was an article about the trial of the directors of South Canterbury Fince Co, at which all but one of the directors were acquitted. I find the South Canterbury Finance Co, and its principal director, Allan Hubbard, interesting. The collapse of SCF cost the New Zealand tax payer NZ$1.58 billion, because the funds of SCF were guaranteed by the Crown Guarantee Scheme. That is a lot of money, just under the total spent on Defence, just over 10% of the total spent on Education or Health. Timaru is quite a pleasant country town, with an attractive beach and majestic mountains in the background, but it is hardly the financial hub of the country, yet by the time of its collapse SCF was one of the largest finance companies of the country, and Allan Hubbard, its elderly crumpled chief, driving an old Volkswagen and living in a modest bungalow was thought of as a smart finacial guru. He managed to fool not only 35000 investors, experienced financial advisors, but also Treasury, who never wondered what a small time country accountant is doing footing it with the experienced financiers of this world. There is something in the New Zealand mentality, the No. 8 fencing wire attitude, that there is nothing an ordinary hardworking bloke can't fix with a little ingenuity, that hepled to perpetuate this illusion and gigantic fraud. There was the belief about that good old grandfatherly Allan Hubbard from a small country town that saw no change, no innovation for a generation or more can be trusted more than the flash city boys in their smart suits and resplendent offices. Cheating people who should have known better proved to be so simple that even good old Hubbard could devise such a scheme. You own a number of different companies. One of them is losing money, so you sell it off to one of the other companies just before the annual balance date, so that the losses don't show up in the balance sheet, and the day after the the report of a successful profitable year, the loss making company is sold back again to the original business that owned it before. It is a simple money go round, that even a simple reader of the finacial pages should have seen though, but the experts at the Treasury, and the savvy stockbrokers didn't ask the fundamental questions they should have, how did grandad, working from a modest Timaru office managed to accumulate NZ$1.55 billion of loans and debentures. What was in the water in Timaru that made people there so much smarter?