How Regulation is Killing the Open Market.

Mark Hubbard's picture
Submitted by Mark Hubbard on Wed, 2010-12-01 23:39

Whoops: to anyone coming in here via the link from NotPC, this thread was originally called the Authorised Financial Advisor (AFA) Regulations ... thread.

[Warning: I have a life so I’ve not read it all, barely even half, of this legislation.]

Long title of appropriate Act:

Oh vey is the State going to whack you if you transgress all this Gobbly Gook and accompanying Whopper Securties Legislation bullshit.

If I've got someone giving me investment advice, I'd rather that person could pass an economics exam, rather than advise me on his legally constructed code of ethics (that also doubles as PR for a professional body with a monopoly) and consumer law legislation.

Correct me if I'm wrong, but the AFA designation includes only minimal and very basic technical components. Moreover, it's regulation that won't stop tomorrows problems, because it was written to cover yesterday's failures (Hat tip Fairfax O'Rouke). So we've put in more layers of bureaucracy, created a mammoth police state super duper regulator at the heart of it all, but we still have investing by numbers.

Oh no no no. 'Ethical' investing by numbers. Snort.

As stated clearly in this piece - http://www.stuff.co.nz/busines... - the laws already existed to 'theoretically' stop the finance company mayhem, but as with all over-regulation, it came to nothing, and now we've just moribund our economy even more. Part of the course, of course ... (And lets not even go to the need for sound money and the broken Keynesian economic system the finance companies were all operating in that was in reality the problem). Regulation did not stop the chaos in the finance company sector, 'buyer beware' is the only thing that could have.

Before August 2008 the State was somewhere between 46% and 47% of the entire economy, this is still rising ... I'll leave it to the AFA's to make the connection between that and the prospects of the domestic investment products they're selling. (And next time you're at your AFA's office, ask him what the technical definition of inflation is, or to explain the capital asset pricing model (CAPM): if he can't answer, ask yourself if the code of ethics has been constructed for him, or for you, the investor).

And I wonder if John Key may start finally pondering the over preponderance and mess of securities legislation now he is trying to implement legislation that will create a financial hub in New Zealand, with many thousands of jobs attached, and billions of dollars to the country: http://www.nzherald.co.nz/busi...

Bemoans our leader:

The Prime Minister's frustration with Ministry of Economic Development officials spilled over publicly during a question session at an Auckland dinner on Tuesday night where he stressed New Zealand needed to be more optimistic and back success.

"There's been a whole series of advice coming from MED which basically says 'if you want to do this, you've got to deliver the Magna Carta of documents'," Key told the International Business Forum audience.

"'You've got to do all these things and need bipartisan support' and [so] it goes - on and on and on."

And on and on and on, yes John: well you keep feeding this ugly old tyrant called Nanny State, why don’t you spend the rest of your political career freeing us from her and her minions of bureaucrats. That would be the best news for investors and investment in New Zealand.

[Shall we start a book on how many people I can upset with this one? (Oh no, I've just had phonecall, I'm promoting an unauthorised sweepstake: apparently the little grey men from Internal Affairs are on the way now. I'd say we'll drown our sorrows over a drink, but I've not got a licence.]


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Regulation and Political Sheeple/Sandi :) Pleasing Xenophobia

Mark Hubbard's picture

... is killing the market for farm sales. This is denying the farming sector the innovation and capital it requires to remain internationally competitive.

http://www.stuff.co.nz/busines...

Uncertainty over foreign land deals is thought to be weighing heavily on efforts to sell a group of dairy farms in the central North Island.

Twenty-nine "designer" dairy farms created by Carter Holt Harvey around Tokoroa have been sitting on the market since early this year.

The company initially hoped to sell them for $224.5 million.

But a real estate agent involved in the marketing effort says interested parties are waiting for the outcome of the Crafar farms deal to set the tone on foreign farm ownership.

...

Crafar farms, now in receivership, are subject to an Overseas Investment Office decision on whether Hong Kong-backed Natural Dairy consortium can complete the purchase.

The 16-farm deal is controversial because of the backers' anonymity and the financial troubles of business associate May Wang. Two months ago, the Serious Fraud Office said it was investigating the deal.

In August the Government said it was reviewing the approval of agricultural land to foreigners, which in recent times has averaged about 82 hectares a day.

Stephen Franks, a company law expert and former ACT list MP, said uncertainty would remain in the area of foreign land sales until the Government removed the element of political "second guessing" involved.

Daily the assault on free markets, that is, our freedoms, is continuing apace under this National government. The ministerial (subjective thus unknowable) override introduced to the OIO criteria is shameful, and I would only have expected to see this uninformed free market hating xenophobia from Cullen or Caygill, sorry, Cunliff; not from a National government. National are no longer the friend of the farmer.

Property Market Imbalance due to Over-Regulation

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[Cross post from Kim Jong Hickey's post on his 'concern' that property market seems to be reviving again, despite the tax framework having been changed: http://www.interest.co.nz/opin... ]

This simply shows how regulation/tax/State is not the answer the Kim Jongs' think it is - it is the problem.

Why would you invest in the NZX: the exchange is dying and the FMA may well kill it - http://www.solopassion.com/nod... - and we have an over-regulated, over taxed business environment, which is at the heart of it all, destroying innovation and entrepreneurship . Everybody wants Nanny State to protect them from the big bad finance company people, but Nanny can't - apparently the legislation was there the first time round, but wasn't used, so what makes anyone think that even more regulation will fix the losses from the next (keynesian) bust. Regulation just attacks the symptoms, not causes of investor losses, and nothing can protect an investor other than caveat emptor - they have to get themselves educated.

All this taxation and regulation (AFA's, FMA, all the stifling gobbly gook) is simply serving to grow the State - which is unproductively consuming just about half the economy now - and choking the free market and thus business. So the answer it not to tax and regulate property, it's to free up the environment for doing business.

The first government which courageously sets the target of halving the government spend over the next five years will be onto the true, structural (and philosophic) solution. Every party in Parliament at the moment, is committed to growing the size of the State.

This current government is great at talking up the smaller State, but they've not put a single policy in place to effect that.

[Incidentally, I don't agree that 'the regulation was there to stop the finance companies mayhem', as it was the model itself that could not cope with what happened, and no regulation could have dealt to that because it was a product of our planned economy, but if you try and cater for every point, then you have to start referencing the entire Internet in every post.]

Regulation in NZ is Killing our Share Market

Mark Hubbard's picture

[Note how I've changed the name of this thread to being one where I'll simply add posts about the over-regulation of NZ business activity, and how that is slowly (or not so slowly) choking our economy.]

A share market it an essential for any free market as the first port of call for private business to seek equity funding. Over-regulation in New Zealand has a very good chance of actually destroying our NZX. Consider:

1) http://www.stuff.co.nz/busines...

The New Zealand equity market is at risk of extinction, says Bernard Doyle at JB Were Investment Strategy Group in a submission to the Savings Working Group.

"The current lack of IPOs (initial public offers), waning international interest and poor market liquidity are not simply a post-recession pause," Doyle said. "They are indicative of an equity market in structural decline, which has become self-perpetuating."

His industry experience suggests the equity market's decline is more advanced than many outside observers perceive, Doyle said.

Note how the decline of the NZX pre-dated the global recession: I say it is because NZ was already an over-regulated, over taxed place to do business, especially when you factor in our distance from markets, meaning we would need to have advantages in these two areas of competition, not road-blocks.

Now add to this, on top of the current xenophobia against overseas investment right up to ministerial level, with the decisions from the Overseas Investment Office, already a bureaucratic nightmare ( http://www.nbr.co.nz/article/o... ) now having the subjective decision of the minister to deal with also, we further have this coming Nanny State monstrosity of the FMA ...

2) http://www.nbr.co.nz/article/f...

The bill establishing the ‘super-regulator’ Financial Markets Authority (FMA) risks doing more harm than good if it is rushed through in its current form.

Rob Cameron, chair of the Capital Markets Development Taskforce, backed up NZX’s view that the bill would undermine its ability to compete with foreign exchanges - particularly the ASX - offering services in NZ.

So (1) + (2) = the possible death of our share market.

Over-regulation, Nanny State politicians and bureaucrats whose non-productive, wealth destroying consumption now takes up almost half of all economic activity in New Zealand are, not even slowly any more, killing the golden goose that promises the individuals in New Zealand their freedom and higher standards of living: that is our free market.

[Tailpiece: and thinking of NZX CEO Mark Weldon's adovacy over the end of the last year for more taxation and more complication within our hotch potch of taxation legislation via the dismantling of the QC and LAQC regime, then one must include the enemies of the free markets 'were' and are to be found at the highest levels. Only now, faced with the FMA, is Weldon finally starting to figure out that the State is the problem, not the solution to bash his own competition with - in the QC case, he was hoping to cripple property sector investment and thus to have funds there transferred to investment in NZ shares- however, it may well be too late].

Regulation and Innovation

Mark Hubbard's picture

This is simply a Tribeless cross-post from the following NBR piece this morning: http://www.nbr.co.nz/article/n...

Tailpiece.

And I see in another story some bright spark in government has had the brainwave to provide a financial assistance for tertiary institutions to implement more courses in entrepreneurship. (I can't find the link or remember the full details).

Big sigh.

The also completely mistaken notion that politicians and bureaucrats can either pick, or worse, make market leaders. No, obviously that's not the way it works. Indeed, possibly the last place you'll find an entreprenuer is on a tertiary entrepreneur course. If you leave markets open and free, these innovators will always find the market, if you want to close innovators down, then just regulate free markets out of existence (such as the draconian Finanical Markets Authority legislation currently being rushed through). It's as hard and yet as easy as that.

But you'll never be able to tell a politician or a bureaucrat that we are all better off by them simply standing aside. Just as you'll never be able to convince a NZ investor that his best defence is 'buyer beware' not regulation.
.

Financial Markets Authority legislation

Mark Hubbard's picture

By the by, the 'super duper' regulator I was referring to above was the Financial Markets Authority. The legislation on this is a hotch potch free market destroying mess:

http://www.nbr.co.nz/article/f...

The bill establishing the ‘super-regulator’ Financial Markets Authority (FMA) risks doing more harm than good if it is rushed through in its current form.

Repeat calls were made for the bill to be stripped back to only what is necessary to pass the FMA, to avoid pre-empting next year's major securities law review [yes, there's a whole lot more bullshit coming].

Rob Cameron, chair of the Capital Markets Development Taskforce, backed up NZX’s view that the bill would undermine its ability to compete with foreign exchanges - particularly the ASX - offering services in NZ.

Of particular concern are the FMA’s proposed powers to demand data and relevant documentation and its ability to set market integrity rules.

“I haven’t seen the argument from the other side, from the FMA, that would justify what look to me to be draconian powers ... there needs to be a balance struck here and we’re not there yet.”

Have no doubt about it, even John Key doesn't in my header post comments: politicians, bureaucrats and all this regulating are destroying what ever small part we have left of a free market, and in doing so they are, of course, destroying our living stardards and our freedoms - that is, our lives.

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