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Heather Roy's Diary

Posted on 24 Jul 2009

Media Storm In A Credit Teacup
A simple product launch this week quickly turned into something of a media storm as news agencies reported a 'revolutionary new' credit rating system. In reality the product is a numerical scoring of the company's credit data, which can be purchased to assist with risk assessment - and assessment is already standard practice of lending institutions like banks.

Any measure that provides accurate, timely and useful information to the financial market is to be welcomed. This product has emerged from a debate around the pros and cons of negative credit reporting versus positive credit reporting.

The country's largest credit reporting company Veda Advantage - formerly BayCorp - announcement that, as of early August, it will begin offering for sale credit rating data that scores people by rating them between -330 and +1,000 to determine their creditworthiness when they apply for finance.

The rating will be based on information that Veda already holds on the applicant - individuals with scores of 100 or less will find it difficult to obtain credit, 500-600 is the average, and those with 700 or higher would be viewed as low-risk.

While this is a new product for Veda, credit reporting is not actually new. With negative reporting - which we have now - an agency will assess a lenders risk based on past loan defaults or bankruptcies. Under positive reporting someone on a low income - who, on the surface, might appear a credit risk - can build up a positive record should they have a history of paying their bills promptly.

Lenders have long used credit reporting systems. One form of positive credit rating is pre-approved credit limits - have you ever wondered why your credit card limit keeps going up, or why a banker might approve your personal loan on the spot?

Companies like Veda represent only a small part of the total financial market - debt collection and the supply of historical information about past financial transactions for which it has visibility. Many people assume these companies are lenders but they are not, they offer databases for sale as part of their business.

Historical information is just one relevant factor and isn't necessarily considered by lenders to be the top predictor of reliable repayment. It should be noted that there are many examples of security breaches committed by individuals with previously unblemished security records.

To be relied upon by lenders and borrowers, any system must have general acceptance from all major elements of the market. To this end, major trading banks and financial lending institutions have spent many years working to develop credit rating systems that strike an effective balance between these challenging points on the financial market continuum.

The rating systems used by the major lenders are derived from substantial analysis of their own lending data. In particular, they assess lenders by: age, income, profession and debt delinquency in that priority order.

Using this criteria, a low-income pensioner for example - who, stereotypically might appear a bad credit risk - might be viewed as a good credit risk under a behaviour model because they have a calmer, more predictable lifestyle and are often debt-free with assets such as a freehold house.

Under most bank scoring models the weighting carried by age, income and profession scores trumps debt delinquency. Unfortunately, debt collection and credit reporting companies like Veda do not often have all the information necessary to build up this kind of 'total risk picture'.

A very important concern surrounding this issue is privacy. Credit reporting firms currently want privacy law to be changed so they can collect more information on New Zealanders. While the Privacy Commissioner's office is considering the proposal as part of a review of credit reporting in New Zealand, opponents claim the move could make it impossible for some people to obtain credit from reputable lenders - forcing them to turn to fringe lenders.

Advocates, however, believe that supplying more information would provide lenders with a more accurate view - allowing them to calculate risk, adjust interest rates, and offer applicants more reasonable and appropriate credit.

Whatever the outcome, this is a timely reminder for consumers to check their credit history and become familiar with the information that credit reporting agencies hold about them.

Consumers should be aware of their creditworthiness and can obtain a free annual credit report with which to do so. Should the report be incorrect, they can ask that details be corrected - if this is denied, they must be told the reason and can ask that a 'statement of the correction sought but not made' be attached to their record and be included in future reports.

While the security of debt is an important issue to consider, this is also a good time - given the current financial climate - for people to concentrate on savings as well.

Lest We Forget - Nixon Ordered To Hand Over Watergate Tapes (July 24 1974)
Thirty-five years ago the US Supreme Court ordered President Richard Nixon to surrender recordings of White House conversations about the Watergate affair - in which burglars were caught rifling through confidential papers and bugging the office of Nixon's political opponents at the Watergate Hotel headquarters of the Democratic National Committee during the 1972 election campaign.

While the White House had already released edited transcripts, Nixon had refused to comply with a court order requiring him to produce the tapes - which, according to prosecutor Leon Jaworski, implicated the President in a cover-up of the break-in.

On July 24 1974, however, Chief Justice Warren E Burger rejected Nixon's claims of executive privilege and ordered him to "yield to the demonstrated, specific need for evidence in a pending criminal trial."

Although expressing disappointment with the ruling, Nixon said he would comply with the ruling and went on to become the first US president in history to resign from office in August 1974.



Posted on 24 Jul 2009

Speech by Federated Farmers President - Don Nicolson at the ACT Regional Conference at Bunnythorpe, Saturday, 18 July 2009

Thank you for inviting me to speak to the ACT Central North Island Conference.

Federated Farmers welcomes this opportunity to engage with all political parties and will be attending both National and Labour’s conferences later in the year.

I would like to start my speech by looking back to the mid 17th century.

Then a series of political false steps led to the most destructive war ever fought on British soil.

That being the war fought between English Parliamentarians and the Monarch, Charles I.

This Civil War broke out due to absolutism.

The European notion of the divine right of kings so desired by King Charles and his cavaliers went up against the embryonic notion of parliamentary democracy favoured by the roundheads.

The war was decided long before the Battle of Naseby in the Treasury.

The roundheads held the chequebook and the King, frankly, didn’t.

And now here we are, more than 358 years down the road and facing a similar predicament but from a whole new quarter.

The neo-Royalists now sit in their air-conditioned Wellington offices telling us what we can do, when we can do it and how we can do it.

Are we in an age of new absolutism whereby those who tax us display the same arrogance that led to the worst war on British soil?

Which brings me to an important question, who is farming exactly who in Godzone?

I’m of course referring to the massive, often negative impact that one farm in particular has on the entire economy.

This farm is among the smallest in New Zealand and is located in just one part of the country.

This 110 acre - or 45 hectare - farm has doubled its expenditure over the past ten years from around $39 billion to about $80 billion today.

That farm is called Government and it's located in Wellington. And that 110 acre block is the area of office space that Government occupies.

But when you take into account New Zealand’s 85 local authorities whose job it seems is to regulate every aspect of our lives, this farm swallows up much more than just 110 acres.

Statistics New Zealand tells us there are 57,000 people working full time in central and local government administration and thousands more in services throughout the country.

When almost the entire population of Rotorua is being employed in Government, it’s a sure sign something is out of control.

That’s exactly why Federated Farmers wants Government to move decisively on your leader, the Hon Rodney Hide's efforts on regulatory and local government reform.

However, while we truly believe changes to the Local Government Act are necessary, the key objective should be to change the way local government is funded.

At our recent National Conference in Auckland, I was pleased to hear Mr Hide say he would push to bring local government expenditure under control.

Too many farmers currently face huge rates bills even before this year's increases.

Farmers don’t bemoan paying costs where they can be absolutely defined but in most instances farmers are being farmed for their rates just because they can be.

Put plain and simple - something must be done to bring these costs under control, and it must be done now.

The total rates take across all local authorities to June 2008 was $3.5 billion.

Yet these local authorities still plan to keep increasing their take at the expense of both urban and rural ratepayers.

According to the Department of Internal Affairs, council operating expenditure is forecast to rise by 41 percent and rates revenue by 59 percent over the coming decade.

Even worse is the increase in local authorities' reliance on rates to fund more proposed spending.

Rates are forecast to rise from 55 percent of cash income to 60 percent over the next 10 years - which flies in the face of the 2007 Rates Inquiry that aimed to reduce the reliance on rates.

Farmers are telling us loud and clear that they are at their wits end.


My Door’s Always Open, Mr Key

Posted on 24 Jul 2009

ACT New Zealand Welfare Spokesman Sir Roger Douglas today called for a genuine rethink of how we deliver welfare services in New Zealand in light of startling figures showing that - since the introduction of Working for Families in 2004 - the ratio of workers to beneficiaries has steadily dropped to a point where it now takes the efforts of almost three working New Zealanders to support two beneficiaries."

"No economy can sustain such an imbalance – especially at a time when it is difficult enough for working New Zealanders to provide for just themselves and their families," Sir Roger said.

"Unfortunately, the Government is completely unwilling to address this issue or even consider possible solutions – highlighted when Mr Key dismissed a recent report on welfare published by the New Zealand Business Roundtable out of hand, labelling it 'draconian' without even reading it.

"Meanwhile, Labour continues to push its tired old barrow – now demanding that the welfare burden on hard-working New Zealanders be increased by making it even easier for people to receive a benefit.

"The problems facing our economy, especially those around welfare, need to be tackled with real and innovative solutions – not by Labour's old chestnut of spending ever more money for little gain, or by National simply sticking its head in the sand.

"This Government is so focussed on staying in office for a second term that it is following in Labour's footsteps and is only prepared to do what they think will retain or win votes.

"This has left ACT as the only Party that can honestly say it has the innovative policies and real solutions to move the country forward and create more wealth for every New Zealander.

"That's why I am suggesting Mr Key, Mr English and Mr Goff take a break and meet in an endeavour to come up with solutions. If they are bereft of ideas - as I suspect they are - then I am happy to supply a basic policy document to get the ball rolling," Sir Roger said.


ANZ’s Reputation At Stake

Posted on 23 Jul 2009

ACT New Zealand Finance Company Spokesman John Boscawen today urged ANZ to give investors more time to lodge complaints around ANZ/ING's Diversified Yield Fund and Regular Income Fund following Banking Ombudsman Liz Brown’s appearance before the Commerce Select Committee.

"According to Ms Brown, many ANZ/ING investors have delayed lodging a complaint because they are ashamed of the situation they have found themselves in," Mr Boscawen said.

"In fact, some of these investors are only now informing their families that they have lost this money – so great is their embarrassment and humiliation in losing, what is for some, their life savings.

"But should ANZ extend its complaints deadline from July 31 to September 30 these investors may have some chance of recovering more of their money, with Ms Brown stating that if investors' complaints are upheld, they will receive $1 for every dollar invested plus interest – potentially doubling the 60-62 cents in every dollar invested that ANZ/ING has agreed to refund.

"Given that ANZ has already been found to have misled more than two thirds of complainants adjudicated to date, it is highly likely that other complaints will be upheld.

"If ANZ is to have a hope of recapturing the trust of its customers and the wider public, it must show itself to be responsible and accountable. ANZ should extend the complaints deadline – its reputation depends on it," Mr Boscawen said.


Police Need To Front Up To Gun Owners

Posted on 22 Jul 2009

Recent moves by police to reclassify thumb - holes on rifle stocks as 'free - standing pistol grips' will have expensive and far - reaching consequences for gun owners, ACT New Zealand Law & Order Spokesman David Garrett said today.

"By introducing a wholesale change to the regulation, large numbers of legitimate gun owners will be left having to either re - licence and invest heavily in even more robust security, or selling their weapons on a devalued market," Mr Garrett said.

"These guns have been bought and sold legally over the years under the current rules. Given the expensive consequences police must proactively front up and explain why these changes have been implemented, what they hope to achieve, and what alternatives were considered and discarded.

"Police must also explain whether they have considered the impact of this law in driving even more weapons underground into the illegal gun market. The issue of illegal gun ownership warrants serious consideration and the question must be asked: will this move make things better or worse?

"Homicide, suicide and non - intentional death by firearms have reduced steadily over several decades. Why are police moving now to impose extra costs on legitimate gun owners - especially as only around one percent of violent crime involves a firearm and, in the vast majority of cases, those are illegally obtained?

"Looking forward, the police’s proposed information campaign is a good idea. The sooner they front up and inform legitimate gun owners with substantial and sensible answers to these questions, the better," Mr Garrett said.


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