Many Reasons Adrian Orr Resigned
ANALYSIS / OPINION -
Why Central Bankers Matter
I remember the day that Lehman Brothers fell. LB was a global financial services behemoth.
Fourth largest investment bank in the world.
The brand smelt of prestige and calibre.
But their demise in 2008 - caused by shoddy risk management practices and cowboy banking - precipitated the worst economic crisis since the Great Depression.
(Trump = hold my beer)
That period later became known as the Global Financial Crisis - the “GFC.”
Lehman Brother’s bankruptcy precipitated the GFC:
Banks were too scared to lend to each other.
Financial services executives scrambled to determine their exposure.
Bank customers started to worry, precipitating potential “run on bank” scenarios across the world.
Like the beginnings and middle of Covid, all crises feel scary for their events and ongoing potentials.
And in this case, the world’s banks - and indeed the entire financial system - was at risk.
So all central banks moved in - quickly.
The “safety and stability of the financial system” is a fundamental remit of central banks around the world.
It’s literally a core function of why RBNZ (Reserve Bank of New Zealand), RBA (Reserve Bank of Australia), Bank of Canada, Bank of England etc. exist.
In the GFC, the bailout to save banks from their own stupidity i.e. poor risk management practices, chasing profit over due diligence, and short term performance KPIs that rewarded recklessness - was not cheap.
US Congress’s package amounted to USD $700bn - that’s over NZD $1.2 trillion
In the UK, the package was estimated at GBP £500bn - again over NZD $1.2 trillion.
AUD $120bn in Australia.
NZ spent around $1.6bn.
The reason we escaped relatively unscathed is 1. size of our system 2. nature of our financial business 3. strong prudential regulation of our banks.
i.e. central bank management and rules
And yes all the “bailout money” was taxpayers’ money.
Money that could have been used to fund schools, hospitals, doctors, roads, public transport, social services.
What GBP £40bn could buy in the UK: 1520 new schools, 6 years of policing, 633 Apache military helicopters etc….
The Reserve Bank of New Zealand is critically aware of this history - and how lax regulations and requirements allowed the GFC to occur in the first place.
I won’t go into the history of the various laws, but any financial scholar or central banker would be similarly aware of the GFC in detail, and its cost -
Post Financial Crisis Measures
The steps taken to remediate future risks around the world included stronger capital requirements on banks i.e. requiring them to put money aside to absorb unexpected shocks, more rules around risk management, as well as e.g. expanding deposit guarantee schemes so consumers would feel safe.
These are all very reasonable and prudent measures for an RBNZ governer to care about.
Any central banker worth their weight would.
Adrian Orr, by all accounts, cared.
I wasn’t a loud fan of Adrian Orr, but the reality is hindsight is 20/20.
Navigating with at times opaque data points in the present moment isn’t for the faint hearted.
Our inflation in NZ undeniably followed global trends pumped by supply side shocks during Covid, price manipulation e.g. in the shipping industry, and domestic induced demand.
National and allies such as NZ Initiative, ACT, Taxpayers Union heavily criticized Orr as a means to attack Labour’s economic credentials.
And while valid criticism is a part of our democracy, I believe, the vested interests appeared to purposely ignore context - for eg. the once in a lifetime global health pandemic that killed over 7 million worldwide, supply chain shocks that rocketed inflation everywhere, and domestic induced demand.
Aotearoa New Zealand’s Inflation Mirrors Global Trends
Yes, New Zealand, all said and done, parallels global inflation waves — and it was no exception during and after Covid:
But the vested interests never put their words into context - effectively blanketing Kiwis with an, in my view, intentional sleight of hand misinformation.
Simplistic Tabloid Language Used To Manipulate Kiwis
On this note, National, ACT and their allies almost seem trained to use emotion laden and/or simplistic language to short circuit understanding.
For example, the sympathetic NZME labelled government debt to save lives and preserve the economy a “party hangover” - with all the intentional and misleading connotations that brings.
I recall ex-tobacco man Chris Bishop repeating the same line on TV last year.
Yet, realistically NZ’s handling of debt during Covid was praised by those who know best - international credit agencies that affirmed NZ’s top tier AAA and AA+ credit ratings.
S&P Global Ratings said the country's AA+ rating, which was upgraded in 2021, reflected the government's handling of the pandemic, low debt, discipline and economic growth, and there was no reason to change.
We also remained one of the lowest debt to GDP ratio countries in the OECD at the time.
The NZ economy came out of it all with many jobs preserved, businesses supported albeit more indiscriminately during the panic, and a conservative 20,000 Kiwi lives saved.
As of January 2024, Treasury also affirmed “The [National led] government [has] inherited better finances than expected” with projections for positive growth.
So - was everything perfect?
I defer to
comments yesterday after Orr’s resignation -
The Parallels between Truss and Willis
Orr’s job was probably made much harder when NZ’s Liz Truss*, Nicola Willis, took the helm of Finance Minister in New Zealand.
Truss and Willis’s parallels* are clear to my mind.
Over-confident politicians, Willis would “rather listen to penguins” than 15 credible and experienced economists - just as Liz Truss ignored credible economists and experts, causing one of the most spectacular crashes in economic history.
Truss’s dumpster fire of libertarian, “free market” economic policies, crashed the pound, forced the Bank of England to intervene to stop UK pension funds being wiped out, and cost UK taxpayers £30 bn pounds (NZD = $68 bn) in a few short weeks.
Liz Truss relied on Atlas Network affiliated IEA - a libertarian ‘junk tank’, for her “laboratory “ ideas - and our government looks very much like it relies on Atlas Network affiliated NZ Initiative “think / junk tanks” too.
Fiscal conservative Robert MacCulloch in The Post wrote:
National and ACT (and so now the whole New Zealand Government, bar NZ First) acquired an empty, non-economic growth policy stance which has little to do with economics and everything to do with [libertarian] philosophy.
It is why Finance Minister Willis is lost, with no answers to the nation's stagnation.
It is why she has no plan.
It is why she ran to Business NZ last week asking them what to do.
It is why she runs to the NZ Initiative asking them what to do.
It is why the PM runs to his economic adviser [ex-NZ Initiative, libertarian] Burgess asking what to do.
It is why they get no practical answers.
The various men at NZ Initiative had earlier praised Luxon for “running the country like a business” and for anyone in the unfortunate position of noticing NZ Initiative (formerly Business Roundtable) headlines, you can often spot the direct correlation between their thought processes and Luxon and Simeon Brown’s words.
Yes -
The same network of failed ideologies that produced one of the biggest economic disasters in modern government - Liz Truss - could be steering the bus here too with our own Finance Minister and NZ government.
It’s not like we were’t warned.
But how do you think Orr might have felt?
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