The Case for State Asset Sales

Originally posted @ Share Investor Blog

Much has been written over the last month since the National Party announced its policy to partially sell State Electricity assets should they win the November 26 election and most of it the typical rantings of those commentators from the left and those politicians from the same place that are scaremongering for political gain.

If we look at the facts before us though, in terms of the economic fortunes of New Zealand we are in a dire situation.

These are the main points of the National Party Policy:

• The Government would have to maintain a majority controlling stake by owning more than 50 per cent of the company.

• New Zealand investors would have to be at the front of the queue for shareholdings, and we would have to be confident of widespread and substantial New Zealand share ownership.

• The companies involved would have to present good opportunities for investors.

• The capital freed up would have to be used on behalf of taxpayers to fund new public assets and thereby reduce the pressure on the Government to borrow.

• The Government would have to be satisfied that industry-specific regulations adequately protected New Zealand consumers.

Very specific guidelines for a sale process that do not mention full sales.

We have very high debt levels, both personally and publicly and this debt is a heavy weight on out present and future economic stability.

We owe almost as much as we own and borrowing and interest costs are currently having a big impact on us, with the State borrowing NZ$300 million a week and individuals still borrowing and servicing their own debt.

This impact will have long term effects if we do not do anything to either pay down more debt, cut spending or drastically cut both. Nobody would attempt to do the latter, apart from the most rabid right wingers so we have to do something right?

Absolutely is the unequivocal answer.

While I would be happy to sell non-essential assets to the State like schools, hospitals, airlines, banks and many other under-performing state monopolies, the National Party are only considering selling partial minority stakes in 4 electricity companies to Mum and Dad investors -hardly a sell-down of the family silver!

The control of those assets remains in the hands of the State on behalf of all of us, so it shouldn't be a problem to the left who have championed the same sort of sell-down of Air New Zealand Ltd [AIR.NZX] that happened under Labour nearly 10 years ago, so the current opposition seems at the very least sour grapes that the left are not in power and at the most hypocritical to the extreme.

The proceeds from a sell down of 49% stakes in the 4 remaining state power companies should go to paying down debt, there are indications that Government want to use the cash freed up to buy other assets for the State but that would clearly be a mistake given the poor quality of management of State assets under any political party.

The sell-down will also encourage prospective small Mum and Dad investors to invest in good companies based in New Zealand rather than putting money into dead end stuff like term investments, private real estate or investing money overseas.

The vast proportion of Kiwisaver money and money invested in various New Zealand superannuation schemes is currently invested offshore and that clearly needs to change.

We need to invest in ourselves, promote a savings culture based on our own assets and the National Party proposal ticks all those positive boxes.

To scaremonger by saying this policy is one based on failed models of the 1980s and 1990s is simply that and is not based on fact at all but a political agenda and lack of economic education, business skills and a determination and political ethos that will have us stuck with the debt we have now for generations to come.

We need to take politics out of this and take a good hard look at the merits based on fact.


Recent Share Investor Reading

• Freightways Ltd: 2011 Half Year Profit Commentary
• Share Investor Portfolio: Value @ 14 February 2011
• Allan Hubbard Saga: Supporters Risk Legal Action
• Telecom New Zealand 2011 first half profit reveiw
• Mark Hotchin Comes Out Swinging
• The Warehouse Group: Tips for the new CEO
• Share Investor's NZX Market Diary: 7 -14 Feb 2011

Discuss this Topic @ Share Investor Forum


From Fishpond.co.nz



Buy Every Bastard Says No - The 42 Below Story, by Geoff Ross & Justine Troy & more @ Fishpond.co.nz





c Share Investor & Darren Rickard 2011

The Case for State Asset Sales

Much has been written over the last month since the National Party announced its policy to partially sell State Electricity assets should they win the November 26 election and most of it the typical rantings of those commentators from the left and those politicians from the same place that are scaremongering for political gain.

If we look at the facts before us though, in terms of the economic fortunes of New Zealand we are in a dire situation.

These are the main points of the National Party Policy:

• The Government would have to maintain a majority controlling stake by owning more than 50 per cent of the company.

• New Zealand investors would have to be at the front of the queue for shareholdings, and we would have to be confident of widespread and substantial New Zealand share ownership.

• The companies involved would have to present good opportunities for investors.

• The capital freed up would have to be used on behalf of taxpayers to fund new public assets and thereby reduce the pressure on the Government to borrow.

• The Government would have to be satisfied that industry-specific regulations adequately protected New Zealand consumers.

Very specific guidelines for a sale process that do not mention full sales.

We have very high debt levels, both personally and publicly and this debt is a heavy weight on out present and future economic stability.

We owe almost as much as we own and borrowing and interest costs are currently having a big impact on us, with the State borrowing NZ$300 million a week and individuals still borrowing and servicing their own debt.

This impact will have long term effects if we do not do anything to either pay down more debt, cut spending or drastically cut both. Nobody would attempt to do the latter, apart from the most rabid right wingers so we have to do something right?

Absolutely is the unequivocal answer.

While I would be happy to sell non-essential assets to the State like schools, hospitals, airlines, banks and many other under-performing state monopolies, the National Party are only considering selling partial minority stakes in 4 electricity companies to Mum and Dad investors -hardly a sell-down of the family silver!

The control of those assets remains in the hands of the State on behalf of all of us, so it shouldn't be a problem to the left who have championed the same sort of sell-down of Air New Zealand Ltd [AIR.NZX] that happened under Labour nearly 10 years ago, so the current opposition seems at the very least sour grapes that the left are not in power and at the most hypocritical to the extreme.

The proceeds from a sell down of 49% stakes in the 4 remaining state power companies should go to paying down debt, there are indications that Government want to use the cash freed up to buy other assets for the State but that would clearly be a mistake given the poor quality of management of State assets under any political party.

The sell-down will also encourage prospective small Mum and Dad investors to invest in good companies based in New Zealand rather than putting money into dead end stuff like term investments, private real estate or investing money overseas.

The vast proportion of Kiwisaver money and money invested in various New Zealand superannuation schemes is currently invested offshore and that clearly needs to change.

We need to invest in ourselves, promote a savings culture based on our own assets and the National Party proposal ticks all those positive boxes.

To scaremonger by saying this policy is one based on failed models of the 1980s and 1990s is simply that and is not based on fact at all but a political agenda and lack of economic education, business skills and a determination and political ethos that will have us stuck with the debt we have now for generations to come.

We need to take politics out of this and take a good hard look at the merits based on fact.


Recent Share Investor Reading

• Freightways Ltd: 2011 Half Year Profit Commentary
• Share Investor Portfolio: Value @ 14 February 2011
• Allan Hubbard Saga: Supporters Risk Legal Action
• Telecom New Zealand 2011 first half profit reveiw
• Mark Hotchin Comes Out Swinging
• The Warehouse Group: Tips for the new CEO
• Share Investor's NZX Market Diary: 7 -14 Feb 2011

Discuss this Topic @ Share Investor Forum


From Fishpond.co.nz



Buy Every Bastard Says No - The 42 Below Story, by Geoff Ross & Justine Troy & more @ Fishpond.co.nz





c Share Investor 2011

Free Market to Pollies: We dont want you!

The meltdown of world financial markets has been headlined in the news to the max over the last couple of weeks and the prequel to it has been simmering for more than a year.

Massive collapses of Sub Prime related lenders like Merrill Lynch, Lehman Brothers, Bear Sterns and a whole host of other major lenders have bitten the dust. Some have been "rescued" by the US Fed and some have simply died a natural death. They took the risk, so they should therefore die by their own sword.

Unfortunately these lenders are not being allowed to die a natural death. Uncle Sam is getting involved, in a big way, and that will be a big problem sometime in the future.

Much finger pointing from the left of the political sphere that the "failure of true capitalism" or "the free market" is the fault of the free marketeers and their greed and it just goes to show that capitalism doesn't work.

That is rubbish of course and nothing could be further from the truth.

Capitalism or the free market in its current form hasn't been allowed to be free from interference from Governments the world over, and as we scramble to yet another taxpayer bailout of private investors and publicly listed companies we see the same sort of interference that has brought the whole credit market down, begin all over again.

The facts are that bad lending was forced on lenders by Congress back in the 1980s:

Congress set up processes (Research the Community Redevelopment Act) whereby community activist groups and organizers could effectively stop a bank's efforts to grow if that bank didn't make loans to unqualified borrowers.

Real Clear Politics

This has led to the current and inevitable blow out that we are now experiencing.

Rather unsurprisingly two of the first lenders to go were the State backed Fannie and Freddie, now laughingly called Feddy because it is now fully State owned.

Ironically, Fannie Mae was set up in the 1930s as a State antidote to the crazy lending of the 1920s, the stockmarket crash in 1929 and the depression of the 1930s to lend money to the "secondary mortgage market" (sounds familiar doesn't it). Freddie Mac was set up by the Federal Government in the 1970s when Fannie was privatised but Fannie still had Federal input.

Even more bizarrely, New Zealand politicians from the left are contemplating setting up our own sub prime mess by allowing people who cant afford to borrow to buy houses the ability to borrow money with the help from the State.

Will we ever learn?

The free market must be left to function perfectly as it would if left alone. That is, those that take risks either benefit from those risks or lose their shirts, that is how a free market truly works.

Until politicians keep their sticky little interfering fingers out of that free market we will continue to experience economic meltdowns of the wonderful variety that we are currently grasping to fully understand.

I can hardly wait for the "carbon trading" collapse.


Related Share Investor Reading

Who is attacking your portfolio?
Global credit squeeze: There is no free lunch
Of tulip bulbs and tooth fairies
Current credit crunch a blessing is disguise
Leaders must come clean over losses to restore faith
Market Meltdown: I can smell the fear from here

Discuss this Topic @ Share Investor Forum


Buy Toughen Up: What I've Learned About Surviving Tough Times



Toughen Up - Fishpond.co.nz


c Share Investor 2008