KEY POINTS:
In the turmoil of financial markets at present, New Zealand did not need news of a second company in a state of collapse.
Nathans Finance, like Bridgecorp but unlike several earlier casualties, was not known as a lender of high risk.
Nathan is a reputable name in the
country's commercial sector, and perhaps not many investors knew the finance company of that name was a wholly owned subsidiary of a vending machine franchise business, VTL, now insolvent.
Even fewer of those attracted by Nathans' interest rates would have known that more than half of the money raised was being lent to its parent company's franchise owners. Perhaps they should have known; they await a Securities Commission view on whether the company's prospectus has been sufficiently clear.
The investors are victims of VTL's abandoned bid for control of one of the largest independent vending machine companies in the US. VTL's withdrawal surprised the sharemarket, leading to this week's suspension of trading in its shares. It is not clear whether the abandoned bid was a casualty of the US credit crunch, but Nathans' troubles do not help New Zealand ride out the consequent crisis of confidence in financial investments everywhere.
Otherwise, this country seems to be weathering the squall fairly well. The dollar's steep descent last week seems to have settled for the moment around US68c, which is not as low as many exporters would like it to go but better for consumers than appeared likely last week.
The kiwi has lost the most speculative investors who began to bail out when the Reserve Bank indicated its most recent interest rate rise was likely to be the last, and many more fled the dollar in the worldwide scramble for safety from the tremors radiating from the US low-security mortgage market.
Most encouragingly, the much-feared maturing of uridashi bonds this month has had little effect to this point.
When $2.5 billion worth of bonds reached maturity on Monday the kiwi opened the day at US67.79 and closed at US69.1. It seems that as much as $2.9 billion of the $3.65 billion maturities this month has already been reinvested in the currency.
Markets, it is often said, run in cycles of greed and fear. Greed generates growth of capital, consumption, employment, taxation and public services. Fear can destroy them. Investors become afraid of risk for no better reason than others are afraid.
In unsecured finance markets that depend on a constant flow of new money to repay maturing loans, fear can be fatal.
And when companies in those markets lend to each other, an onset of fear can cause them to collapse one after another, each failure just adding to the public climate of fear and suspicion of the whole financial system.
In an attempt to prevent such a crisis, central banks in the United States and other places have already injected extra cash into their economies. The Reserve Bank of New Zealand has announced it stands ready to do likewise but so far has seen no need. The take-up of new uridashi and eurokiwi bonds this month suggests we still enjoy ample confidence abroad.
The currency has been helped by the US Federal Reserve's interest rate cut last Friday and the prospect of another cut next month. But the so-called "carry trade" on interest rate differential favours only currencies with credible monetary policies and economies behind them.
This crisis can be contained if fear is not compounded needlessly by the likes of finance company failures. A tremor such as this one is a useful caution that greed feeds on risk and fear feeds only on itself.
