In reading this blog , it pays to start at the last post and flick up to the next , As laying out of the page is beyond my skills
Still it gets the information up and out there, and hopefully will get people to start questioning the road on which New Zealand is following !
I quoted Mr Chris Trotter and Prof J Kelsey , the information used was out in the public domain and able to be used , My Thanks go out to these good people,
Finally I really recommend the reading of the Five Families a Mexican case study . It really does apply to New Zealand
Stephen
Wednesday, 19 August 2009
Los pueblos, unido, jamas sera vincido!
political party - with roots extending into every city, every suburb and every street of the nation.
Oh, how their laughter would cease when a party like that started rising in the opinion polls. And, oh,
how quickly their power would crumble when that party became linked to a militant trade union
movement, with members in every factory, in every shop, in every office, and – yes – in every
university.
"Don’t mourn", said the great American union leader, Joe Hill, as they led him out to be executed,
"organise!" And he was right.
It can be done. It has been done – right here in New Zealand. The Labour Party, in its socialist phase,
had all of the attributes that I have listed above, and it used them to transform New Zealand.
It is one of the great ironies – and the great tragedies - of our history, that it was Labour which, fifty
years after the election of Mickey Savage’s Government, set about destroying its socialist legacy.
But what they could not destroy was the shining lesson of that transformative moment. And it remains
the duty of each one of us to take the time to learn that lesson all over again.
My time for learning it came on a Dunedin motorway, one winter afternoon in July.
When and where you will learn it, I cannot predict: - perhaps it will be while fighting the lifting of the
GE moratorium; or for the right to strike; or for a new covenant between Maori and Pakeha; or even in
your long and principled struggle for free education.
But whenever and wherever your time for learning comes, you will be amazed at the lesson’s
simplicity.
In Spanish it goes like this: Los pueblos, unido, jamas sera vincido!
The people, united, can never be defeated.
But in 2004 it was expected that payments in this year ( 2018) would begin to exceed revenues in the
US retirement system.
Oh, how their laughter would cease when a party like that started rising in the opinion polls. And, oh,
how quickly their power would crumble when that party became linked to a militant trade union
movement, with members in every factory, in every shop, in every office, and – yes – in every
university.
"Don’t mourn", said the great American union leader, Joe Hill, as they led him out to be executed,
"organise!" And he was right.
It can be done. It has been done – right here in New Zealand. The Labour Party, in its socialist phase,
had all of the attributes that I have listed above, and it used them to transform New Zealand.
It is one of the great ironies – and the great tragedies - of our history, that it was Labour which, fifty
years after the election of Mickey Savage’s Government, set about destroying its socialist legacy.
But what they could not destroy was the shining lesson of that transformative moment. And it remains
the duty of each one of us to take the time to learn that lesson all over again.
My time for learning it came on a Dunedin motorway, one winter afternoon in July.
When and where you will learn it, I cannot predict: - perhaps it will be while fighting the lifting of the
GE moratorium; or for the right to strike; or for a new covenant between Maori and Pakeha; or even in
your long and principled struggle for free education.
But whenever and wherever your time for learning comes, you will be amazed at the lesson’s
simplicity.
In Spanish it goes like this: Los pueblos, unido, jamas sera vincido!
The people, united, can never be defeated.
But in 2004 it was expected that payments in this year ( 2018) would begin to exceed revenues in the
US retirement system.
Springboks
They sincerely want us to be better qualified, better paid, and more productive as a nation. And, to
achieve those goals, they have been willing to strap us into what the New York Times columnist,
Thomas Friedman, calls the "golden straightjacket" of free markets and free trade.
They desperately want us to accept what that guru of the Third Way - Anthony Giddens – insists is "the
fact" of globalisation. But what they cannot seem to understand is that the economic and social order
created by free markets and free trade is absolutely incompatible with the existence of free citizens.
As Freidman is so fond of saying: "The purpose of the new capitalism is to shoot the wounded."
The "new" capitalism is also, I might add, incompatible with a living planet - which means that the
choice we have to make is not simply between – as Rosa Luxembourg wrote – "socialism and
barbarism" (that choice, I fear, has already been made) but between a living planet and a dead one.
So, you see, the stakes we are playing for have gotten very high.
Too high for the Greens, alone, to win.
The challenge facing all progressive New Zealanders is to how to translate their analysis of what is
wrong with the world, into political action capable of putting it right.
There are those who argue that the world can be saved only by building an alternative culture in the
nooks and crannies 21st Century capitalism has yet to colonise. That the pursuit of power is a project
doomed to failure, because power has no location – it is always in the next room, or on the next floor
up.
I do not agree. In fact, I violently disagree.
Let me tell you why.
Twenty-two years ago, in 1981, I was part of the Dunedin organising group against the Springbok
Tour. A week or so before the Springboks arrived in Otago, we decided to organise a training run up to
Carisbrook. About 500 of us gathered on the motorway, linked arms, and began marching towards the
ground. After a few steps we started chanting: "Amandla! Amandla! Amandla Ngewhetu! Power to the
people."
I’ll never forget the way the chanting, and the marching, and the linked arms transformed that group of
ordinary New Zealanders. It was as if an electric charge was flowing through them and around them.
Their eyes shone and their faces glowed. For the first time in my life I understood the awesome and
unstoppable power of solidarity; of people united in a common cause.
Change can only come through mass political action.
Just as the only source of profit is human labour, the only source of political power is human
organisation. The capitalists are organised to a degree that beggars belief, but working people, young
people, progressive people seem to have lost their way.
How the Dick Cheneys and Donald Rumsfelts of this world must laugh at the progressive movement’s
cumbersome consensus-based decision-making, and its "affinity groups". How puny they must appear
alongside their aircraft carriers and Abrams tanks.
But how much more dangerous progressivism would seem if it was organised into a single, disciplined,
achieve those goals, they have been willing to strap us into what the New York Times columnist,
Thomas Friedman, calls the "golden straightjacket" of free markets and free trade.
They desperately want us to accept what that guru of the Third Way - Anthony Giddens – insists is "the
fact" of globalisation. But what they cannot seem to understand is that the economic and social order
created by free markets and free trade is absolutely incompatible with the existence of free citizens.
As Freidman is so fond of saying: "The purpose of the new capitalism is to shoot the wounded."
The "new" capitalism is also, I might add, incompatible with a living planet - which means that the
choice we have to make is not simply between – as Rosa Luxembourg wrote – "socialism and
barbarism" (that choice, I fear, has already been made) but between a living planet and a dead one.
So, you see, the stakes we are playing for have gotten very high.
Too high for the Greens, alone, to win.
The challenge facing all progressive New Zealanders is to how to translate their analysis of what is
wrong with the world, into political action capable of putting it right.
There are those who argue that the world can be saved only by building an alternative culture in the
nooks and crannies 21st Century capitalism has yet to colonise. That the pursuit of power is a project
doomed to failure, because power has no location – it is always in the next room, or on the next floor
up.
I do not agree. In fact, I violently disagree.
Let me tell you why.
Twenty-two years ago, in 1981, I was part of the Dunedin organising group against the Springbok
Tour. A week or so before the Springboks arrived in Otago, we decided to organise a training run up to
Carisbrook. About 500 of us gathered on the motorway, linked arms, and began marching towards the
ground. After a few steps we started chanting: "Amandla! Amandla! Amandla Ngewhetu! Power to the
people."
I’ll never forget the way the chanting, and the marching, and the linked arms transformed that group of
ordinary New Zealanders. It was as if an electric charge was flowing through them and around them.
Their eyes shone and their faces glowed. For the first time in my life I understood the awesome and
unstoppable power of solidarity; of people united in a common cause.
Change can only come through mass political action.
Just as the only source of profit is human labour, the only source of political power is human
organisation. The capitalists are organised to a degree that beggars belief, but working people, young
people, progressive people seem to have lost their way.
How the Dick Cheneys and Donald Rumsfelts of this world must laugh at the progressive movement’s
cumbersome consensus-based decision-making, and its "affinity groups". How puny they must appear
alongside their aircraft carriers and Abrams tanks.
But how much more dangerous progressivism would seem if it was organised into a single, disciplined,
T5
time of even those who cannot find regular employment.
The reasoning behind the Right’s obsession with welfare reform is, however, perfectly logical. By
reducing the state-provided income of the unemployed to subsistence level, and then requiring them to
work for it, they are immediately transformed into a vast army of wage reducers and work intensifiers.
And that means that the workers in paid employment are constantly looking over their shoulders and
wondering what it will take to keep the boss from replacing them with someone cheaper.
"Longer hours? – Sure Boss." "Work faster? – Yes Sir." "Can I come in weekends? – No problem."
"Am I asking for a wage rise? – Hell no!" "Unions? – Never heard of them."
Ever wondered why ecstasy and methamphetamine are the drugs of choice for your generation, when
marijuana and LSD were the drugs of choice for mine? Well, it’s simple, grass slows everything down,
while speed – as its name suggests – allows you to do more with less (less sleep, less food, less
morals). LSD suggests that the workaday world is only one of many realities, while E makes the
realities of the workaday world temporarily bearable. Our escape was into time, your escape is out of it.
Small historical footnote: Both Russian and German troops at Stalingrad were fed vast quantities of
amphetamines – it was the only way their officers could keep them killing each other. That should tell
you something.
It should also give you a hint as to why Nandor Tanczos and the Greens are in favour of
decriminalising cannabis.
The Greens grew out of the Values Party – which laid claim to being the first "post-materialist"
political party in the world. I wasn’t old enough to vote in 1972, when Values was launched, but I well
remember the impact it had on young people all over New Zealand.
Here was a party that looked forward to a world where there was less work and more leisure.
I remember Mike Ward from Nelson – now a Green MP – telling his television audience that Values
was about giving us more time to do the things that really mattered - like making love and playing with
our children.
That was not the sort of political campaigning we were used to hearing in New Zealand: – Vote Values
for more sex and play.
Even the Left found it disconcerting. Did you ever hear Jim Anderton say - Vote Alliance for more sex
and play? Can you imagine Helen Clark distributing a little card promising that - "under Labour New
Zealanders will be free to play around?"
The Greens – as far as I can see – are the only political party which truly understands that social
progress is about reducing the amount of time required from every citizen for providing the necessities
of a civilised existence, and the expansion of the amount of time available to every citizen for personal
growth and development.
No one else gets it – not even Labour. For Helen Clark and Michael Cullen and Steve Maharey
government is all about the quantity of life, not the quality of life.
The reasoning behind the Right’s obsession with welfare reform is, however, perfectly logical. By
reducing the state-provided income of the unemployed to subsistence level, and then requiring them to
work for it, they are immediately transformed into a vast army of wage reducers and work intensifiers.
And that means that the workers in paid employment are constantly looking over their shoulders and
wondering what it will take to keep the boss from replacing them with someone cheaper.
"Longer hours? – Sure Boss." "Work faster? – Yes Sir." "Can I come in weekends? – No problem."
"Am I asking for a wage rise? – Hell no!" "Unions? – Never heard of them."
Ever wondered why ecstasy and methamphetamine are the drugs of choice for your generation, when
marijuana and LSD were the drugs of choice for mine? Well, it’s simple, grass slows everything down,
while speed – as its name suggests – allows you to do more with less (less sleep, less food, less
morals). LSD suggests that the workaday world is only one of many realities, while E makes the
realities of the workaday world temporarily bearable. Our escape was into time, your escape is out of it.
Small historical footnote: Both Russian and German troops at Stalingrad were fed vast quantities of
amphetamines – it was the only way their officers could keep them killing each other. That should tell
you something.
It should also give you a hint as to why Nandor Tanczos and the Greens are in favour of
decriminalising cannabis.
The Greens grew out of the Values Party – which laid claim to being the first "post-materialist"
political party in the world. I wasn’t old enough to vote in 1972, when Values was launched, but I well
remember the impact it had on young people all over New Zealand.
Here was a party that looked forward to a world where there was less work and more leisure.
I remember Mike Ward from Nelson – now a Green MP – telling his television audience that Values
was about giving us more time to do the things that really mattered - like making love and playing with
our children.
That was not the sort of political campaigning we were used to hearing in New Zealand: – Vote Values
for more sex and play.
Even the Left found it disconcerting. Did you ever hear Jim Anderton say - Vote Alliance for more sex
and play? Can you imagine Helen Clark distributing a little card promising that - "under Labour New
Zealanders will be free to play around?"
The Greens – as far as I can see – are the only political party which truly understands that social
progress is about reducing the amount of time required from every citizen for providing the necessities
of a civilised existence, and the expansion of the amount of time available to every citizen for personal
growth and development.
No one else gets it – not even Labour. For Helen Clark and Michael Cullen and Steve Maharey
government is all about the quantity of life, not the quality of life.
T3
days as a student, has no place in Steve Maharey’s brave new lecture theatres of the future.
If you want to study classical literature, when the Tertiary Education Council wants you to study
biotechnology, then you’ll have to pay the full tuition costs of a classical education out of your own
pocket.
Steve and his mates want graduates who can earn – not citizens who can think.
Of course with a $30,000 student debt hanging over your head, you will want to earn too – as much and
as often as possible. There won’t be a lot of time for anything else.
Those student loans – by the way – are a lot more dangerous than even NZUSA has let on. In fact, they
are proving to be sociological and demographic time-bombs.
A healthy democracy requires a large and relatively secure middle class, and if that democracy is to be
long-lived, it needs a middle class which is ready, willing and able to reproduce itself.
Massive student debt is making middle class reproduction extremely difficult. Not only is it causing
young adults to postpone marriage, but it is turning home ownership into a distant dream.
Most middle class people will not contemplate starting a family until they have a home of their own, so
parenthood is being pushed further and further into the future. That means much smaller families. The
norm for my parents was three or four children. The norm for the parents of the 21st Century – that’s
you - will be one or two.
The rapidly expanding middle class that characterised the period of the post-war boom is a thing of the
past. Today the middle class is shrinking, and with it the tax base that makes a decent and democratic
society possible.
New Zealand society used to be shaped like a rugby ball, now it resembles a Balinese stupa – a broad
flat base with a narrow spike of obscene wealth and privilege rising up out of the middle.
So, are the other parties any better? Well, if our criteria is time, the answer – with the exception of the
Greens, which I shall come to presently – is an emphatic "No."
In fact, National, ACT, NZ First and United Future are all committed to increasing the amount of time
people have to spend working for the capitalists. They opposed paid parental leave, they are adamantly
opposed to increasing the amount of annual leave, they see no alternative to raising the age of
retirement to 67 - or beyond - and they are determined to restore "flexibility" to the labour market.
New Zealand’s flexible labour market is, of course, the National Party’s greatest contribution to the
new economic order. The Employment Contracts Act effectively destroyed private sector unionism in
New Zealand, and with it all the numerous restrictions workers had imposed on their employers’ ability
to control the speed, intensity and duration of paid work.
Given that most of our adult lives revolve around the workplace – it is, after all, where we spend the
bulk of our waking hours – the destruction of the New Zealand trade union movement and the
introduction of authoritarian managerial models to the workplace was the New Right’s single most
effective blow against the rights and freedoms of New Zealand citizens.
National and ACT are also really keen on "Welfare Reform" – otherwise known as "working for the
dole". It is hard to imagine a better illustration of the way in which capitalism seeks to monopolise the
If you want to study classical literature, when the Tertiary Education Council wants you to study
biotechnology, then you’ll have to pay the full tuition costs of a classical education out of your own
pocket.
Steve and his mates want graduates who can earn – not citizens who can think.
Of course with a $30,000 student debt hanging over your head, you will want to earn too – as much and
as often as possible. There won’t be a lot of time for anything else.
Those student loans – by the way – are a lot more dangerous than even NZUSA has let on. In fact, they
are proving to be sociological and demographic time-bombs.
A healthy democracy requires a large and relatively secure middle class, and if that democracy is to be
long-lived, it needs a middle class which is ready, willing and able to reproduce itself.
Massive student debt is making middle class reproduction extremely difficult. Not only is it causing
young adults to postpone marriage, but it is turning home ownership into a distant dream.
Most middle class people will not contemplate starting a family until they have a home of their own, so
parenthood is being pushed further and further into the future. That means much smaller families. The
norm for my parents was three or four children. The norm for the parents of the 21st Century – that’s
you - will be one or two.
The rapidly expanding middle class that characterised the period of the post-war boom is a thing of the
past. Today the middle class is shrinking, and with it the tax base that makes a decent and democratic
society possible.
New Zealand society used to be shaped like a rugby ball, now it resembles a Balinese stupa – a broad
flat base with a narrow spike of obscene wealth and privilege rising up out of the middle.
So, are the other parties any better? Well, if our criteria is time, the answer – with the exception of the
Greens, which I shall come to presently – is an emphatic "No."
In fact, National, ACT, NZ First and United Future are all committed to increasing the amount of time
people have to spend working for the capitalists. They opposed paid parental leave, they are adamantly
opposed to increasing the amount of annual leave, they see no alternative to raising the age of
retirement to 67 - or beyond - and they are determined to restore "flexibility" to the labour market.
New Zealand’s flexible labour market is, of course, the National Party’s greatest contribution to the
new economic order. The Employment Contracts Act effectively destroyed private sector unionism in
New Zealand, and with it all the numerous restrictions workers had imposed on their employers’ ability
to control the speed, intensity and duration of paid work.
Given that most of our adult lives revolve around the workplace – it is, after all, where we spend the
bulk of our waking hours – the destruction of the New Zealand trade union movement and the
introduction of authoritarian managerial models to the workplace was the New Right’s single most
effective blow against the rights and freedoms of New Zealand citizens.
National and ACT are also really keen on "Welfare Reform" – otherwise known as "working for the
dole". It is hard to imagine a better illustration of the way in which capitalism seeks to monopolise the
Mr T 2
Kathmandu. It was a wonderful time and a wonderful country in which to be young. There was time to
grow up, time to learn, time to become a real human being.
And that’s what I miss most about the world that passed away in the 1980s and 90s – the automatic
assumption that, as New Zealanders, we had all the time in the world.
It was an assumption that could only be made in a workers’ – not a bosses’ - world. The ability to limit
the amount of time individuals are able to devote to themselves and their families is the true measure of
Capitalism’s social, political and economic power. The more time you are forced to spend working for
the money you need to survive, the more dependent you are on your employer, and the less freedom
you have to tell him to get stuffed.
Have you ever noticed how angry politicians and business people get about unemployed people on the
dole "going surfing"? Even if the capitalists cannot find a job for you, they and their minions in the
State apparatus still expect you to devote all of your time to looking for work, or acquiring skills, or
visiting your case worker at WINZ. In societies like ours, Time and Liberty are very closely related.
So, how much time do you have in 2003 – and are any of the principal political parties proposing to
offer you more of it?
This is not so abstract a question as you might think. One of the earliest demands of organised labour –
dating back over a century – was for a limitation of working hours. And one of the first things the First
Labour Government did in 1936 was to reduce the length of the normal working week from 48 to 40
hours.
In a very real sense the entire socialist programme was about how to disengage the individual from the
tyranny of the employer’s clock. What, after all, is profit, if it is not the time you spend working for the
capitalist rather than for yourself? Public ownership, by doing away with the need for profit, was
supposed to reduce the amount of time required to keep society functioning – thereby making more
time available for individuals and families.
Let’s begin with Labour. How much time are they offering you?
Not a great deal, I’m afraid. Even though the Labour Party itself is in favour of legislating for an extra
week of annual leave, the Labour Government has announced that it will not be happening before the
next election.
There is, however, a real possibility that paid parental leave may be extended from 12 to 14 weeks – a
small but very welcome donation of time to mothers and their babies.
Michael Cullen’s "Super Fund" – into which so much of the State’s income is now being poured, may -
and I emphasise "may" - be enough to prevent future governments from extending the time we have to
spend working for a living – which is good. Not as good as Rob Muldoon’s reduction of the age of
retirement from 65 to 60 in 1976, but better than nothing.
For students, however, no time seems to be available. Labour still expects you to compress the years it
takes to acquire the necessary tertiary qualifications to the absolute minimum consistent with retaining
your sanity.
The idea of pursuing knowledge for knowledge’s sake, which still had some purchase on reality in my
grow up, time to learn, time to become a real human being.
And that’s what I miss most about the world that passed away in the 1980s and 90s – the automatic
assumption that, as New Zealanders, we had all the time in the world.
It was an assumption that could only be made in a workers’ – not a bosses’ - world. The ability to limit
the amount of time individuals are able to devote to themselves and their families is the true measure of
Capitalism’s social, political and economic power. The more time you are forced to spend working for
the money you need to survive, the more dependent you are on your employer, and the less freedom
you have to tell him to get stuffed.
Have you ever noticed how angry politicians and business people get about unemployed people on the
dole "going surfing"? Even if the capitalists cannot find a job for you, they and their minions in the
State apparatus still expect you to devote all of your time to looking for work, or acquiring skills, or
visiting your case worker at WINZ. In societies like ours, Time and Liberty are very closely related.
So, how much time do you have in 2003 – and are any of the principal political parties proposing to
offer you more of it?
This is not so abstract a question as you might think. One of the earliest demands of organised labour –
dating back over a century – was for a limitation of working hours. And one of the first things the First
Labour Government did in 1936 was to reduce the length of the normal working week from 48 to 40
hours.
In a very real sense the entire socialist programme was about how to disengage the individual from the
tyranny of the employer’s clock. What, after all, is profit, if it is not the time you spend working for the
capitalist rather than for yourself? Public ownership, by doing away with the need for profit, was
supposed to reduce the amount of time required to keep society functioning – thereby making more
time available for individuals and families.
Let’s begin with Labour. How much time are they offering you?
Not a great deal, I’m afraid. Even though the Labour Party itself is in favour of legislating for an extra
week of annual leave, the Labour Government has announced that it will not be happening before the
next election.
There is, however, a real possibility that paid parental leave may be extended from 12 to 14 weeks – a
small but very welcome donation of time to mothers and their babies.
Michael Cullen’s "Super Fund" – into which so much of the State’s income is now being poured, may -
and I emphasise "may" - be enough to prevent future governments from extending the time we have to
spend working for a living – which is good. Not as good as Rob Muldoon’s reduction of the age of
retirement from 65 to 60 in 1976, but better than nothing.
For students, however, no time seems to be available. Labour still expects you to compress the years it
takes to acquire the necessary tertiary qualifications to the absolute minimum consistent with retaining
your sanity.
The idea of pursuing knowledge for knowledge’s sake, which still had some purchase on reality in my
Mr Trotters Speech 1
In one sense that is very good news for NZUSA. It shows that your national organisation has become a
permanent fixture in the array of interest groups with which the New Zealand State must negotiate.
Yes, that’s right, you are up there with Federated Farmers and the Plunket Society.
From my own perspective, however, that gap of 22 years covers a period in New Zealand history
during which much of what made this country a uniquely positive place in which to live has
disappeared, or changed beyond all recognition.
What I say to you today is, therefore, being communicated across a great abyss of experience and
expectation. For you are, indeed, the children of the Rogernomics Revolution, and I am an overweight
and ageing survivor of the ancien regime.
Let me describe a little of the country I lived in when last I spoke to NZUSA – not merely for
nostalgia’s sake – but because I believe it will help to place in context the challenges that face the
present generation of student politicians; challenges which, rest assured, constitute the substance of my
address to you today.
In 1981 tertiary education was almost entirely subsidised by the state. Sure, there were a number of
token payments at the commencement of every year, the largest of which, I seem to recall, was my
studass fees, but, by and large, my tuition costs – and a respectably large chunk of my living expenses –
were paid for by the State.
The State itself was much larger then - employing between a quarter and a third of the entire
workforce. It owned two of the country’s largest banks, all of its telecommunications network, its
airlines, its railways, its biggest bus service, a shipping line, its entire electricity generation system, its
largest construction force, most of its forests, a chain of tourist hotels, all of its television networks,
nearly all of its radio stations, a weekly newsmagazine, thousands of rental properties, and a host of
other services which I have forgotten. Capitalism existed in New Zealand, but only on terms
established by the New Zealand people in the wake of a protracted global depression and a genocidal
world war.
But the thing that I remember most vividly about the world before Rogernomics is that people had
much more time.
New Zealanders back then did not live to work, they worked to live. Unless you were employed by an
emergency service – or the corner dairy – you had the weekend off.
For two whole days every week the entire economy virtually shut down. And if the Boss wanted you to
work more than eight hours in a single day during the week – Boy, did the trade unions make him pay.
Time-and-a-half, double-time, and on public holidays – triple time.
If you were lucky enough to get a holiday job in a hospital over Christmas-New Year, you could earn a
normal week’s wages in less than 16 hours.
And if you grew tired of your job, if you got bored with the routines of office or factory, you simply
jacked it in. Full employment meant that you could step out of the workforce whenever you felt like it –
take time out to go fishing, or tramping, or go in search of the big OE in Australia, London or
permanent fixture in the array of interest groups with which the New Zealand State must negotiate.
Yes, that’s right, you are up there with Federated Farmers and the Plunket Society.
From my own perspective, however, that gap of 22 years covers a period in New Zealand history
during which much of what made this country a uniquely positive place in which to live has
disappeared, or changed beyond all recognition.
What I say to you today is, therefore, being communicated across a great abyss of experience and
expectation. For you are, indeed, the children of the Rogernomics Revolution, and I am an overweight
and ageing survivor of the ancien regime.
Let me describe a little of the country I lived in when last I spoke to NZUSA – not merely for
nostalgia’s sake – but because I believe it will help to place in context the challenges that face the
present generation of student politicians; challenges which, rest assured, constitute the substance of my
address to you today.
In 1981 tertiary education was almost entirely subsidised by the state. Sure, there were a number of
token payments at the commencement of every year, the largest of which, I seem to recall, was my
studass fees, but, by and large, my tuition costs – and a respectably large chunk of my living expenses –
were paid for by the State.
The State itself was much larger then - employing between a quarter and a third of the entire
workforce. It owned two of the country’s largest banks, all of its telecommunications network, its
airlines, its railways, its biggest bus service, a shipping line, its entire electricity generation system, its
largest construction force, most of its forests, a chain of tourist hotels, all of its television networks,
nearly all of its radio stations, a weekly newsmagazine, thousands of rental properties, and a host of
other services which I have forgotten. Capitalism existed in New Zealand, but only on terms
established by the New Zealand people in the wake of a protracted global depression and a genocidal
world war.
But the thing that I remember most vividly about the world before Rogernomics is that people had
much more time.
New Zealanders back then did not live to work, they worked to live. Unless you were employed by an
emergency service – or the corner dairy – you had the weekend off.
For two whole days every week the entire economy virtually shut down. And if the Boss wanted you to
work more than eight hours in a single day during the week – Boy, did the trade unions make him pay.
Time-and-a-half, double-time, and on public holidays – triple time.
If you were lucky enough to get a holiday job in a hospital over Christmas-New Year, you could earn a
normal week’s wages in less than 16 hours.
And if you grew tired of your job, if you got bored with the routines of office or factory, you simply
jacked it in. Full employment meant that you could step out of the workforce whenever you felt like it –
take time out to go fishing, or tramping, or go in search of the big OE in Australia, London or
Sorry says ACT
* Challenge the TINA ( there is no alternative ) syndrome .. ( again not I am not sure )
* Promote informed debate and critique ..
* Promote participatory democracy ..
* Embrace the Treaty of Waitangi as a liberating force ..
* Encourage progressive counter-nationalism ..
* Develop multi-level strategies ..
* Hold the line ..
* Localise politics ..
* Ginger up party politics ..
* Invest in the future ..
* Support those who speak out ..
* Promote ethical investment ..
* Think global, act local ..
* Think local, act global ..
About now I would like to introduce a paragraph from the ACT parties website;
Monday 17 Jun 2002 Press Releases -- Economic Policy
Between 1984 and 1991 New Zealand implemented a total of 100 major economic reforms. These
consisted of selling state owned assets, opening up the economy and imposing economic targets on the
public sector. New Zealand has consequently been transformed from the most regulated economy in
the OECD to one of the most open and unregulated.
In the period between 1984 and 2000 New Zealand suffered the lowest average economic growth rate
in the OECD. This has been despite New Zealand's honest competent judiciary and civil service, secure
property rights, well educated work force and a population responsive to innovation. New Zealand thus
had and continues to boost excellent capitalist institutions. Additionally during this period New
Zealand's terms of trade were good and exports therefore should have boomed.
Neo-Liberalism through the cutting of social services has also had disastrous social effects. Benefit cuts
have seen poverty return with a vengeance to New Zealand as evidenced by the increasing number of
cases of third world diseases. Under funding of education has lead to regular teacher strikes and to a
situation where the majority of tertiary students are now saddled with debt leading many of New
Zealand's brightest to leave the country for good.
After rigorous intellectual thought and debate we have come to accept the unmitigated failure of
these policies and would like to apologise to the 90% of New Zealand's who have seen their
standard of living deteriorate. Our ideology bankrupt we have chosen to campaign in this
election on the populist issues of law and order and lowering taxes.
Many countries around the world (the ex Soviet Union, Latin America) followed our lead in
implementing Neo-Liberal reforms. Every one of these countries has experienced social and economic
disarray. We thus call upon the IMF, the World Bank and other developmental organisations to
overturn the requirement for nations to implement Neo-Liberal reforms before they can receive
development aid.
So have any of the changes suffered by the hardworking people of New Zealand. I feel not, and
as I finish this debate I will leave you with a speech given by Chris Trotter delivered to the New
Zealand University Students Association’s bi-annual conference on 12 July 2003.
It has been more years than I care to remember since I last addressed a meeting of NZUSA, so
long ago, in fact, that many of you in this theatre would not have been born.
* Promote informed debate and critique ..
* Promote participatory democracy ..
* Embrace the Treaty of Waitangi as a liberating force ..
* Encourage progressive counter-nationalism ..
* Develop multi-level strategies ..
* Hold the line ..
* Localise politics ..
* Ginger up party politics ..
* Invest in the future ..
* Support those who speak out ..
* Promote ethical investment ..
* Think global, act local ..
* Think local, act global ..
About now I would like to introduce a paragraph from the ACT parties website;
Monday 17 Jun 2002 Press Releases -- Economic Policy
Between 1984 and 1991 New Zealand implemented a total of 100 major economic reforms. These
consisted of selling state owned assets, opening up the economy and imposing economic targets on the
public sector. New Zealand has consequently been transformed from the most regulated economy in
the OECD to one of the most open and unregulated.
In the period between 1984 and 2000 New Zealand suffered the lowest average economic growth rate
in the OECD. This has been despite New Zealand's honest competent judiciary and civil service, secure
property rights, well educated work force and a population responsive to innovation. New Zealand thus
had and continues to boost excellent capitalist institutions. Additionally during this period New
Zealand's terms of trade were good and exports therefore should have boomed.
Neo-Liberalism through the cutting of social services has also had disastrous social effects. Benefit cuts
have seen poverty return with a vengeance to New Zealand as evidenced by the increasing number of
cases of third world diseases. Under funding of education has lead to regular teacher strikes and to a
situation where the majority of tertiary students are now saddled with debt leading many of New
Zealand's brightest to leave the country for good.
After rigorous intellectual thought and debate we have come to accept the unmitigated failure of
these policies and would like to apologise to the 90% of New Zealand's who have seen their
standard of living deteriorate. Our ideology bankrupt we have chosen to campaign in this
election on the populist issues of law and order and lowering taxes.
Many countries around the world (the ex Soviet Union, Latin America) followed our lead in
implementing Neo-Liberal reforms. Every one of these countries has experienced social and economic
disarray. We thus call upon the IMF, the World Bank and other developmental organisations to
overturn the requirement for nations to implement Neo-Liberal reforms before they can receive
development aid.
So have any of the changes suffered by the hardworking people of New Zealand. I feel not, and
as I finish this debate I will leave you with a speech given by Chris Trotter delivered to the New
Zealand University Students Association’s bi-annual conference on 12 July 2003.
It has been more years than I care to remember since I last addressed a meeting of NZUSA, so
long ago, in fact, that many of you in this theatre would not have been born.
Prof Jane Kelsey's
Major national assets are transferred to private corporate owners who have primarily very short-term
goals which result in sub-optimal decision-making in times of economic stress, particularly in respect
of strategic assets.
Greatly increased disparity between the 'haves' and the 'have-nots'.
Increase in attitudes of selfishness and 'me first' in the populace, more crime.
Significant geographic regions of the country are severely depressed economically.
Large decrease in all sorts of public service available as of right, resulting in a reduction in standard of
living that is difficult to quantify - one example is information from the many Departmental libraries
that there used to be - gone, or with highly restricted access.
The bargaining powers of wage and salary earners are mostly minimized in the employment world as
unions are disabled and power is vested mainly in the hands of employers; on the face of it, giving
employees the power to negotiate for themselves seems like doing them a good turn; but most
employees have neither the skill, inclination or association of numbers to negotiate effectively for
themselves. They are easily 'picked off' in isolation. 'Divide and conquer' applies in full measure.
This to me is Poverty and generational problems are ;Masochism,Authoritarianism,Lack of
participation in Local issues, Passivity,Low need of / for Education, Finally, Fatalism ,, ( Mr and Mrs
Right Now ). This is a generation cycle and I feel a direct result of the reform implemented by The
fourth labour government .
What should we do from Prof Jane Kelsey's book;
Take economic fundamentalism seriously ..
* Nip it in the bud ..
* Be skeptical about fiscal and other "crises" ..
* Watch for the blitzkrieg ...
* Remember, the conservatives are not always the worst ..
* Take economics seriously ..
* Expose the illogic of their theory ..
* Evaluate the arguments carefully ..
* Challenge hypocrisy ..
* Expose 'stacking of the deck' .. ( I am not sure what this is )
* Maximize every political obstacle ..
* Maintain a strong civil society and popular sector ..
* Work hard to maintain solidarity ..
* Do not compromise the labour movement ..
* Employ the politics of political embarrasment ..
* Reinforce the concept of an independant public service ..
* Encourage community leaders to speak out ..
* Avoid anti-intellectualism ..
* Establish well-resourced critical think-tanks ..
* Develop alternative media outlets ..
* Raise the levels of popular economic literacy ..
* Educate popular and sectoral groups in advance ..
* Resist 'market-speak' ..
* Be realistic and avoid nostalgia ..
* Be pro-active and develop real alternatives ..
* Re-think identity and alliances ..
goals which result in sub-optimal decision-making in times of economic stress, particularly in respect
of strategic assets.
Greatly increased disparity between the 'haves' and the 'have-nots'.
Increase in attitudes of selfishness and 'me first' in the populace, more crime.
Significant geographic regions of the country are severely depressed economically.
Large decrease in all sorts of public service available as of right, resulting in a reduction in standard of
living that is difficult to quantify - one example is information from the many Departmental libraries
that there used to be - gone, or with highly restricted access.
The bargaining powers of wage and salary earners are mostly minimized in the employment world as
unions are disabled and power is vested mainly in the hands of employers; on the face of it, giving
employees the power to negotiate for themselves seems like doing them a good turn; but most
employees have neither the skill, inclination or association of numbers to negotiate effectively for
themselves. They are easily 'picked off' in isolation. 'Divide and conquer' applies in full measure.
This to me is Poverty and generational problems are ;Masochism,Authoritarianism,Lack of
participation in Local issues, Passivity,Low need of / for Education, Finally, Fatalism ,, ( Mr and Mrs
Right Now ). This is a generation cycle and I feel a direct result of the reform implemented by The
fourth labour government .
What should we do from Prof Jane Kelsey's book;
Take economic fundamentalism seriously ..
* Nip it in the bud ..
* Be skeptical about fiscal and other "crises" ..
* Watch for the blitzkrieg ...
* Remember, the conservatives are not always the worst ..
* Take economics seriously ..
* Expose the illogic of their theory ..
* Evaluate the arguments carefully ..
* Challenge hypocrisy ..
* Expose 'stacking of the deck' .. ( I am not sure what this is )
* Maximize every political obstacle ..
* Maintain a strong civil society and popular sector ..
* Work hard to maintain solidarity ..
* Do not compromise the labour movement ..
* Employ the politics of political embarrasment ..
* Reinforce the concept of an independant public service ..
* Encourage community leaders to speak out ..
* Avoid anti-intellectualism ..
* Establish well-resourced critical think-tanks ..
* Develop alternative media outlets ..
* Raise the levels of popular economic literacy ..
* Educate popular and sectoral groups in advance ..
* Resist 'market-speak' ..
* Be realistic and avoid nostalgia ..
* Be pro-active and develop real alternatives ..
* Re-think identity and alliances ..
Manchester Liberals
In this and other works, Smith expounded on how rational self-interest and competition can lead
to economic prosperity and well-being. It also provided one of the best-known intellectual rationales
for free trade and capitalism, greatly influencing the writings of later economists.
In 19th century Britain, laissez-faire capitalism found a small but strong following by
Manchester Liberals such as Richard Cobden and Richard Wright. In 1867, this resulted in a free trade
treaty being signed between Britain and France, after which several of these treaties were signed among
other European countries. The newspaper The Economist was founded in 1843, partly in opposition to
the Corn Laws. Free trade was discussed in places such as The Cobden Club, founded in 1866.
However, Austrian scholars argue that laissez-faire was never the main doctrine of any nation, and at
the end of the 1800s, European countries reintroduced economic protectionism and interventionism.
The centre-right Gaullists in post-World War II France advocated considerable social spending on
education and infrastructure development, as well as extensive economic regulation and a limited
amount of the wealth redistribution measures more characteristic of social democracy. This sounds
familiar.
So reforms took place , what are the effects caused by these reforms, lets look at New Zealand's current
position;
In September 1998, the Anglican Church organised a march to Parliament from each of the two
geographic extremities of New Zealand. The marchers gathered information about the changed
circumstances of New Zealanders as they went along their way, and they met in the middle at
Wellington and presented a copy of their findings to all parliamentarians.
Among the facts they discovered were the following:
1. One third of all New Zealand children are living below the poverty line.
2. Hospital waiting lists are five times the rate of those in Australia.
3. There are 200,000 New Zealanders who can not afford to make the visits to the doctor that they
need.
4. One in eight of the New Zealanders seeking work cannot find it.
5. $NZ 3,000,000,000 ( three thousand million dollars ) will be owed at the end of 1998 by NZ tertiary
students who have had to borrow to get the adequate education they need.
6. 365 foodbanks operate daily to assist New Zealanders in severe need of food, and more foodbanks
are being opened regularly, in response to need.
7. One-half of all the country's tenants ( both public and private ) must spend more than 60 percent of
their income on rent alone.
After twelve years of restructuring, the following is New Zealand's situation:
Annual growth rate of GDP from the year 1985 is one-third that of the preceding 90 years.
Unemployment remains too high. ( real unemployment , defined by people in secure full time work ,
not people with one or two part time jobs )
National debt still not extinguished.
Too-rapid removal of import licensing, removal of tariffs and removal of other protections has cost too
many jobs and industries.
Very many citizens are left with skills and experience wasted, family goals broken.
Many good industries no longer exist in the country.
Foreign ownership of national assets very much higher than previously, adding to the cash outflow.
to economic prosperity and well-being. It also provided one of the best-known intellectual rationales
for free trade and capitalism, greatly influencing the writings of later economists.
In 19th century Britain, laissez-faire capitalism found a small but strong following by
Manchester Liberals such as Richard Cobden and Richard Wright. In 1867, this resulted in a free trade
treaty being signed between Britain and France, after which several of these treaties were signed among
other European countries. The newspaper The Economist was founded in 1843, partly in opposition to
the Corn Laws. Free trade was discussed in places such as The Cobden Club, founded in 1866.
However, Austrian scholars argue that laissez-faire was never the main doctrine of any nation, and at
the end of the 1800s, European countries reintroduced economic protectionism and interventionism.
The centre-right Gaullists in post-World War II France advocated considerable social spending on
education and infrastructure development, as well as extensive economic regulation and a limited
amount of the wealth redistribution measures more characteristic of social democracy. This sounds
familiar.
So reforms took place , what are the effects caused by these reforms, lets look at New Zealand's current
position;
In September 1998, the Anglican Church organised a march to Parliament from each of the two
geographic extremities of New Zealand. The marchers gathered information about the changed
circumstances of New Zealanders as they went along their way, and they met in the middle at
Wellington and presented a copy of their findings to all parliamentarians.
Among the facts they discovered were the following:
1. One third of all New Zealand children are living below the poverty line.
2. Hospital waiting lists are five times the rate of those in Australia.
3. There are 200,000 New Zealanders who can not afford to make the visits to the doctor that they
need.
4. One in eight of the New Zealanders seeking work cannot find it.
5. $NZ 3,000,000,000 ( three thousand million dollars ) will be owed at the end of 1998 by NZ tertiary
students who have had to borrow to get the adequate education they need.
6. 365 foodbanks operate daily to assist New Zealanders in severe need of food, and more foodbanks
are being opened regularly, in response to need.
7. One-half of all the country's tenants ( both public and private ) must spend more than 60 percent of
their income on rent alone.
After twelve years of restructuring, the following is New Zealand's situation:
Annual growth rate of GDP from the year 1985 is one-third that of the preceding 90 years.
Unemployment remains too high. ( real unemployment , defined by people in secure full time work ,
not people with one or two part time jobs )
National debt still not extinguished.
Too-rapid removal of import licensing, removal of tariffs and removal of other protections has cost too
many jobs and industries.
Very many citizens are left with skills and experience wasted, family goals broken.
Many good industries no longer exist in the country.
Foreign ownership of national assets very much higher than previously, adding to the cash outflow.
The nobility, members of the Second Estate
coalition and centre-left government (1999–2002). However, the Alliance disintegrated in 2002.
National was defeated in 1999 due to the absence of a suitable, stable coalition partner given New
Zealand First's partial disintegration after Winston Peters abandoned the prior National-led coalition.
When Bill English took over National, it was thought that he might lead the Opposition away from its
prior hardline New Right economic and social policies, but his indecisiveness and lack of firm policy
direction led to ACT New Zealand gaining the New Right middle-class voting basis in 2002. When
Don Brash took over, New Right middle-class voters returned to National's fold, causing National's
revival in fortunes at the New Zealand general election 2005. However, at the same time, ACT New
Zealand strongly criticised it for deviating from its former New Right economic policy perspectives,
and at the same election, National did little to enable ACT's survival. ACT currently has two Members
of Parliament, and its survival depends on whether or not ACT leader Rodney Hide can retain his
Epsom electorate seat at the next general election. Furthermore, Don Brash resigned as National party
leader, being replaced by John Key, who is seen as a more moderate National MP.
As for the centre-left, Helen Clark and her Labour-led coalition have been criticised from ex-Alliance
members and non-government organisations for their alleged lack of attention to centre-left social
policies, while trade union membership has recovered due to Labour's repeal of the Employment
Contracts Act 1991 and labour market deregulation and the deunionisation that had accompanied it in
the nineties. It is plausible that Clark and her Cabinet are influenced by Tony Blair and his British
Labour Government, which pursues a similar balancing act between social and fiscal responsibility
while in government.
Just as a historical note the term “New right” comes from; The political term right-wing originates from
the French Revolution when liberal deputies from the Third Estate generally sat to the left of the
president's chair, a habit which began in the Estates General of 1789. The nobility, members of the
Second Estate, generally sat to the right. In the successive legislative assemblies, monarchists who
supported the Ancien Régime were commonly referred to as rightists because they sat on the right side.
It is still the tradition in the French National Assembly for the representatives to be seated left-to-right
(relative to the Assembly president) according to their political alignment. By the late 19th century, the
French political spectrum tended to be perceived as being composed of the far left (socialists and
radicals), the center-left (Liberal Republicans), the center (Moderate and Conservative Republicans),
the center-right (Constitutional Monarchists, Orleanists, and Bonapartists), and the far right (Ultra-
Royalists and Legitimists).
Since then, the right wing has come to be associated with preserving the status quo in the form of
institutions and traditions also preferring free market economies with strong private property rights.
[citation needed] Modern Western conservatism was influenced by the works of figures like Edmund
Burke. Burke argued against the idea of abstract, metaphysical rights of men and instead advocated
national tradition: He put forward that "We fear God, we look up with awe to kings; with affection to
parliaments; with duty to magistrates; with reverence to priests; and with respect to nobility. Why?
Because when such ideas are brought before our minds, it is natural to be so affected". Burke defended
prejudice on the grounds that it is "the general bank and capital of nations, and of ages" and superior to
individual reason, which is small in comparison. "Prejudice", Burke claimed, "is of ready application in
the emergency; it previously engages the mind in a steady course of wisdom and virtue, and does not
leave the man hesitating in the moment of decision, sceptical, puzzled, and unresolved. Prejudice
renders a man's virtue his habit". Burke criticised social contract theory by claiming that society is
indeed a contract, but "a partnership not only between those who are living, but between those who are
living, those who are dead, and those who are to be born".
Adam Smith's The Wealth of Nations, one of the earliest attempts to study the rise of industry and
commercial development in Europe, was a precursor to the modern academic discipline of economics.
National was defeated in 1999 due to the absence of a suitable, stable coalition partner given New
Zealand First's partial disintegration after Winston Peters abandoned the prior National-led coalition.
When Bill English took over National, it was thought that he might lead the Opposition away from its
prior hardline New Right economic and social policies, but his indecisiveness and lack of firm policy
direction led to ACT New Zealand gaining the New Right middle-class voting basis in 2002. When
Don Brash took over, New Right middle-class voters returned to National's fold, causing National's
revival in fortunes at the New Zealand general election 2005. However, at the same time, ACT New
Zealand strongly criticised it for deviating from its former New Right economic policy perspectives,
and at the same election, National did little to enable ACT's survival. ACT currently has two Members
of Parliament, and its survival depends on whether or not ACT leader Rodney Hide can retain his
Epsom electorate seat at the next general election. Furthermore, Don Brash resigned as National party
leader, being replaced by John Key, who is seen as a more moderate National MP.
As for the centre-left, Helen Clark and her Labour-led coalition have been criticised from ex-Alliance
members and non-government organisations for their alleged lack of attention to centre-left social
policies, while trade union membership has recovered due to Labour's repeal of the Employment
Contracts Act 1991 and labour market deregulation and the deunionisation that had accompanied it in
the nineties. It is plausible that Clark and her Cabinet are influenced by Tony Blair and his British
Labour Government, which pursues a similar balancing act between social and fiscal responsibility
while in government.
Just as a historical note the term “New right” comes from; The political term right-wing originates from
the French Revolution when liberal deputies from the Third Estate generally sat to the left of the
president's chair, a habit which began in the Estates General of 1789. The nobility, members of the
Second Estate, generally sat to the right. In the successive legislative assemblies, monarchists who
supported the Ancien Régime were commonly referred to as rightists because they sat on the right side.
It is still the tradition in the French National Assembly for the representatives to be seated left-to-right
(relative to the Assembly president) according to their political alignment. By the late 19th century, the
French political spectrum tended to be perceived as being composed of the far left (socialists and
radicals), the center-left (Liberal Republicans), the center (Moderate and Conservative Republicans),
the center-right (Constitutional Monarchists, Orleanists, and Bonapartists), and the far right (Ultra-
Royalists and Legitimists).
Since then, the right wing has come to be associated with preserving the status quo in the form of
institutions and traditions also preferring free market economies with strong private property rights.
[citation needed] Modern Western conservatism was influenced by the works of figures like Edmund
Burke. Burke argued against the idea of abstract, metaphysical rights of men and instead advocated
national tradition: He put forward that "We fear God, we look up with awe to kings; with affection to
parliaments; with duty to magistrates; with reverence to priests; and with respect to nobility. Why?
Because when such ideas are brought before our minds, it is natural to be so affected". Burke defended
prejudice on the grounds that it is "the general bank and capital of nations, and of ages" and superior to
individual reason, which is small in comparison. "Prejudice", Burke claimed, "is of ready application in
the emergency; it previously engages the mind in a steady course of wisdom and virtue, and does not
leave the man hesitating in the moment of decision, sceptical, puzzled, and unresolved. Prejudice
renders a man's virtue his habit". Burke criticised social contract theory by claiming that society is
indeed a contract, but "a partnership not only between those who are living, but between those who are
living, those who are dead, and those who are to be born".
Adam Smith's The Wealth of Nations, one of the earliest attempts to study the rise of industry and
commercial development in Europe, was a precursor to the modern academic discipline of economics.
dismantling of the Australasian model
converting New Zealand funds and credits to foreign currency, and then back to a larger
quantity of New Zealand dollars.
Remember Andy Krieger?
The reformers argued that the speed with which the reforms were made was due to the fact that New
Zealand had not adjusted to Britain’s abandonment of the empire, and had to move quickly to ‘catch
up’ with the rest of the world. Douglas claimed in his 1993 book Unfinished Business that speed was a
key strategy for achieving radical economic change: "Define your objectives clearly, and move towards
them in quantum leaps, otherwise the interest groups will have time to mobilise and drag you down".
Political commentator Bruce Jesson argued that Douglas acted fast to achieve a complete economic
revolution within one parliamentary term, in case he did not get a second chance. The reforms can be
summarised as the dismantling of the Australasian model of state development that had existed for the
previous 90 years, and its replacement by the Anglo-American neoliberal orthodoxy based on the
monetarist policies of Milton Friedman and the Chicago School. Remember this??
The financial market was deregulated and controls on foreign exchange removed. Subsidies to
many industries, notably agriculture, were removed or significantly reduced, as was tariff protection.
The marginal tax rate was halved over a number of years from 66% to 33%; this was paid for by the
introduction of a tax on goods and services (GST) initially at 10%, later 12.5%, and a surtax on
superannuation, which had been made universal from age 60 by the previous government.
Furthermore in New Zealand, as in Australia, it was the Labour Party that initially adopted "New
Right" economic policies, while also pursuing social liberal stances such as decriminalisation of male
homosexuality, pay equity for women and adopting a nuclear-free policy. This meant temporary
realignment within New Zealand politics, as "New Right" middle-class voters voted Labour at the New
Zealand general election 1987 due to approval of its economic policies. At first, Labour corporatised
many former government departments and state assets, then emulated the Conservative Thatcher
administration and privatised them altogether during Labour's second term of office. However,
recession and privatisation together led to increasing strains within the Labour Party, which led to
schism, and the exit of Jim Anderton and his NewLabour Party, which later formed part of the Alliance
Party with the Greens and other opponents of New Right economics.
However, dissent and schism were not to be limited to the Labour Party and Alliance Party alone.
During the Labour Party's second term in office, National selected Ruth Richardson as Opposition
finance spokesperson, and when National won the 1990 general election, Richardson became Minister
of Finance, while Jenny Shipley became Minister of Social Welfare. Richardson introduced
deunionisation legislation, known as the Employment Contracts Act, in 1991, while Shipley presided
over social welfare benefit cuts, designed to reduce "welfare dependency" - both core New Right policy
initiatives.
In the early nineties, maverick National MP Winston Peters also came to oppose New Right economic
policies, and led his elderly voting bloc out of the National Party. As a result, his New Zealand First
anti-monetarist party has become a coalition partner to both National (1996–1998) and Labour (2005- )
led coalition governments. Due to the introduction of the MMP electoral system, a New Right
"Association of Consumers and Taxpayers" party, known as ACT New Zealand was formed by ex-
Labour New Right-aligned Cabinet Ministers like Richard Prebble and others, and maintaining existing
New Right policy initiatives such as the Employment Contracts Act, while also introducing US-style
"welfare reform." ACT New Zealand aspired to become National's centre-right coalition partner, but
has been hampered by lack of party unity and populist leadership that often lacked strategic direction.
As for Labour and National themselves, their fortunes have been mixed. Labour was out of office for
most of the nineties, only regaining power when Helen Clark led it to victory and a Labour/Alliance
quantity of New Zealand dollars.
Remember Andy Krieger?
The reformers argued that the speed with which the reforms were made was due to the fact that New
Zealand had not adjusted to Britain’s abandonment of the empire, and had to move quickly to ‘catch
up’ with the rest of the world. Douglas claimed in his 1993 book Unfinished Business that speed was a
key strategy for achieving radical economic change: "Define your objectives clearly, and move towards
them in quantum leaps, otherwise the interest groups will have time to mobilise and drag you down".
Political commentator Bruce Jesson argued that Douglas acted fast to achieve a complete economic
revolution within one parliamentary term, in case he did not get a second chance. The reforms can be
summarised as the dismantling of the Australasian model of state development that had existed for the
previous 90 years, and its replacement by the Anglo-American neoliberal orthodoxy based on the
monetarist policies of Milton Friedman and the Chicago School. Remember this??
The financial market was deregulated and controls on foreign exchange removed. Subsidies to
many industries, notably agriculture, were removed or significantly reduced, as was tariff protection.
The marginal tax rate was halved over a number of years from 66% to 33%; this was paid for by the
introduction of a tax on goods and services (GST) initially at 10%, later 12.5%, and a surtax on
superannuation, which had been made universal from age 60 by the previous government.
Furthermore in New Zealand, as in Australia, it was the Labour Party that initially adopted "New
Right" economic policies, while also pursuing social liberal stances such as decriminalisation of male
homosexuality, pay equity for women and adopting a nuclear-free policy. This meant temporary
realignment within New Zealand politics, as "New Right" middle-class voters voted Labour at the New
Zealand general election 1987 due to approval of its economic policies. At first, Labour corporatised
many former government departments and state assets, then emulated the Conservative Thatcher
administration and privatised them altogether during Labour's second term of office. However,
recession and privatisation together led to increasing strains within the Labour Party, which led to
schism, and the exit of Jim Anderton and his NewLabour Party, which later formed part of the Alliance
Party with the Greens and other opponents of New Right economics.
However, dissent and schism were not to be limited to the Labour Party and Alliance Party alone.
During the Labour Party's second term in office, National selected Ruth Richardson as Opposition
finance spokesperson, and when National won the 1990 general election, Richardson became Minister
of Finance, while Jenny Shipley became Minister of Social Welfare. Richardson introduced
deunionisation legislation, known as the Employment Contracts Act, in 1991, while Shipley presided
over social welfare benefit cuts, designed to reduce "welfare dependency" - both core New Right policy
initiatives.
In the early nineties, maverick National MP Winston Peters also came to oppose New Right economic
policies, and led his elderly voting bloc out of the National Party. As a result, his New Zealand First
anti-monetarist party has become a coalition partner to both National (1996–1998) and Labour (2005- )
led coalition governments. Due to the introduction of the MMP electoral system, a New Right
"Association of Consumers and Taxpayers" party, known as ACT New Zealand was formed by ex-
Labour New Right-aligned Cabinet Ministers like Richard Prebble and others, and maintaining existing
New Right policy initiatives such as the Employment Contracts Act, while also introducing US-style
"welfare reform." ACT New Zealand aspired to become National's centre-right coalition partner, but
has been hampered by lack of party unity and populist leadership that often lacked strategic direction.
As for Labour and National themselves, their fortunes have been mixed. Labour was out of office for
most of the nineties, only regaining power when Helen Clark led it to victory and a Labour/Alliance
Dont go there Andrew
who pay a five-figure subscription fee, represent most of the large business interests in the country. The
subscription fee funds the New Zealand Business Roundtable's activities.
The New Zealand Business Roundtable has the aim of contributing to the development of policies that
it believes reflect New Zealand's overall national interests. To this end, the organisation produces a
wide range of publications (books, reports, submissions) and undertakes other activities that
inform/influence public debate on key policy issues. Over the years the organisation has brought many
prominent speakers to New Zealand, including Bjørn Lomborg, Francis Fukuyama, Martin Wolf of the
Financial Times and Yegor Gaidar.
The NZBR strongly supported the controversial market-oriented reforms undertaken in New Zealand
during the 1980s and 1990s. These reforms were intended to play a role in lifting New Zealand's
economic growth-rate. The country as of the early 21st century boasts one of the lowest unemployment
rates in the OECD. However, the benefits of such reforms remain a point of contention among
economic commentators and members of the public. Also, other business organisations, such as the
Business Council for Sustainable Development and The New Zealand Institute, claim to present
alternative views in public debate.
The NZBR's market-based policy advocacy continues to reflect what it sees as world best
practice and often appear aligned with those advocated by international organisations such as the
OECD and the International Monetary Fund. Its policies also track overseas trends toward greater
use of the private sector and reduced regulation of business and enterprise.
Now after the currency attack in 1987, the business round table ( The New Right ) financed a
discussion paper to solve the current economic problems plaguing New Zealand at that time.
In 1983, Douglas became responsible for Labour Party economic policy. Throughout the year he
attempted to create an economic policy for the next government. Although his ideas were unorthodox
for a Labour Party MP, Douglas was not at this time a free market ideologue, but someone looking
for practical solutions to the problems of the economy.
He was greatly influenced by Doug Andrew from the Treasury, who had spent time working with the
World Bank, ( influenced by the IMF ) when he became a strong supporter of free market economics.
In June 1983, Andrew became the Treasury liaison with Labour and participated in the party’s debates.
He arranged for Douglas to meet non-government economists to draft an economic policy, the result of
which was the Economic Policy Package put together by Andrew, Douglas and economist Geoff Swier,
and was accepted by the caucus Economic Committee.
The package faced opposition when presented to the Labour Party Policy Council: an alternative
policy was written by Public Service Association economist Peter Harris and others. Neither policy had
enough support to be accepted, but Douglas had the advantage that caucus had the power to send any
policy it did not agree with back to the policy council.
Because of this the alternative policy had no chance of being accepted, and the Economic Policy
Package became the basis of Labour Party policy.
After the snap election of 1984, Douglas hastily began to reform the New Zealand economy, under the
government’s slogan of "We will do the right thing". The speed of the reforms can partially be
attributed to the ‘currency crisis’ that resulted from Robert Muldoon’s refusal to devalue the dollar
after being advised to do so by the incoming government. Labour had planned to devalue the dollar but
had not announced devaluation as part of its election policy - Douglas later stated that doing so
"...would wreak havoc in the foreign exchange market and invite a run on the New Zealand dollar" The
business community became aware of the government's plan and speculated against the dollar,
subscription fee funds the New Zealand Business Roundtable's activities.
The New Zealand Business Roundtable has the aim of contributing to the development of policies that
it believes reflect New Zealand's overall national interests. To this end, the organisation produces a
wide range of publications (books, reports, submissions) and undertakes other activities that
inform/influence public debate on key policy issues. Over the years the organisation has brought many
prominent speakers to New Zealand, including Bjørn Lomborg, Francis Fukuyama, Martin Wolf of the
Financial Times and Yegor Gaidar.
The NZBR strongly supported the controversial market-oriented reforms undertaken in New Zealand
during the 1980s and 1990s. These reforms were intended to play a role in lifting New Zealand's
economic growth-rate. The country as of the early 21st century boasts one of the lowest unemployment
rates in the OECD. However, the benefits of such reforms remain a point of contention among
economic commentators and members of the public. Also, other business organisations, such as the
Business Council for Sustainable Development and The New Zealand Institute, claim to present
alternative views in public debate.
The NZBR's market-based policy advocacy continues to reflect what it sees as world best
practice and often appear aligned with those advocated by international organisations such as the
OECD and the International Monetary Fund. Its policies also track overseas trends toward greater
use of the private sector and reduced regulation of business and enterprise.
Now after the currency attack in 1987, the business round table ( The New Right ) financed a
discussion paper to solve the current economic problems plaguing New Zealand at that time.
In 1983, Douglas became responsible for Labour Party economic policy. Throughout the year he
attempted to create an economic policy for the next government. Although his ideas were unorthodox
for a Labour Party MP, Douglas was not at this time a free market ideologue, but someone looking
for practical solutions to the problems of the economy.
He was greatly influenced by Doug Andrew from the Treasury, who had spent time working with the
World Bank, ( influenced by the IMF ) when he became a strong supporter of free market economics.
In June 1983, Andrew became the Treasury liaison with Labour and participated in the party’s debates.
He arranged for Douglas to meet non-government economists to draft an economic policy, the result of
which was the Economic Policy Package put together by Andrew, Douglas and economist Geoff Swier,
and was accepted by the caucus Economic Committee.
The package faced opposition when presented to the Labour Party Policy Council: an alternative
policy was written by Public Service Association economist Peter Harris and others. Neither policy had
enough support to be accepted, but Douglas had the advantage that caucus had the power to send any
policy it did not agree with back to the policy council.
Because of this the alternative policy had no chance of being accepted, and the Economic Policy
Package became the basis of Labour Party policy.
After the snap election of 1984, Douglas hastily began to reform the New Zealand economy, under the
government’s slogan of "We will do the right thing". The speed of the reforms can partially be
attributed to the ‘currency crisis’ that resulted from Robert Muldoon’s refusal to devalue the dollar
after being advised to do so by the incoming government. Labour had planned to devalue the dollar but
had not announced devaluation as part of its election policy - Douglas later stated that doing so
"...would wreak havoc in the foreign exchange market and invite a run on the New Zealand dollar" The
business community became aware of the government's plan and speculated against the dollar,
The New Zealand Business Roundtable (NZBR)
series of economic problems brought on by changes in the global economy, many of which directly
affected the country, such as Britain’s entry in to the European Economic Community in 1973. New
Zealand was rating badly for living standards and economic performance compared to OECD averages:
in 1980 it had slipped from being in the top five OECD countries to 19th Roger Douglas, who would
later become finance minister, went so far as to say that the country stood “on the brink of economic
ruin”.
Prior to 1985 the New Zealand Dollar was controlled centrally by the Reserve Bank of New
Zealand at a fixed exchange rate to the United States Dollar. In early 1984 the Deputy Governor of the
Reserve Bank, Roderick Deane, became concerned that the dollar had become significantly overvalued
and was vulnerable to currency speculation on the financial markets in the event of a "significant
political event"
Media speculation followed a leak that an incoming Labour government would be likely to
significantly devalue the dollar upon election. The Reserve Bank advised the Prime Minister, Sir
Robert Muldoon, that the dollar should be devalued. Muldoon ignored the advice, owing to his belief
that it would hurt poorer New Zealanders in the medium term. In June 1984 Muldoon announced a
snap election to be held in July. This caused an immediate run on the dollar, as currency speculators
believed a Labour win would mean devaluation. Despite a deepening foreign exchange crisis, Muldoon
continued to refuse to devalue, forcing the Reserve Bank to take some extraordinary steps, such as the
temporary closing the forex markets for a short period of time to slow down devaluation.
On 14 July, Muldoon and National lost the general election, and the Fourth Labour government was
sworn in on 26 July.
By constitutional convention, between election day and the return of the writs for the election, an
outgoing caretaker government defers to the wishes of an incoming government. On Sunday 17 July,
following a meeting between Reserve Bank officials (Reserve Bank Governor Spencer Russell, deputy
Roderick Deane, and Treasury Secretary Bernie Galvin) and the incoming government at Auckland
International Airport, the incoming government requested that the dollar be devalued.
The outgoing Prime Minister Sir Robert Muldoon refused. The foreign exchange market was closed the
following day. In an impromptu television interview with Richard Harman that evening, Muldoon
stated he had been asked to devalue the currency by the incoming government but was not going to.
Prime Minister elect David Lange responded with an interview of his own. He stated: "This nation is at
risk. That is how basic it is. This Prime Minister outgoing, beaten, has, in the course of one television
interview tried to do more damage to the New Zealand economy than any statement ever made. He has
actually alerted the world to a crisis. And like King Canute he stands there and says everyone is wrong
but me".
This provoked a further crisis in the foreign exchange markets - when the exchange was finally opened
on 19 July, millions of foreign exchange dollars left the country as currency speculators expected a
devaluation of the New Zealand dollar. Lange later remarked "We actually were reduced to asking our
diplomatic posts abroad how much money they could draw down on their credit cards! That is the
extent of the calamity that had been ground into us by the briefings that we'd got".
This crisis allowed The business round table with name such as Roger Douglas Roger Kerr , Alan
Gibbs, David Richwhite, Doug Myers, Peter Shirtcliffe as amongst the secret donors. These people
are , according to their website ;
The New Zealand Business Roundtable (NZBR), a market-oriented thinktank, operates from
Wellington, New Zealand. Businessman Robert McLeod chairs the organisation, with Bill Gallagher
MBE, Nick Calavrias and Bill Day as Vice-Chairs. The Executive Director is Roger Kerr. Members,
affected the country, such as Britain’s entry in to the European Economic Community in 1973. New
Zealand was rating badly for living standards and economic performance compared to OECD averages:
in 1980 it had slipped from being in the top five OECD countries to 19th Roger Douglas, who would
later become finance minister, went so far as to say that the country stood “on the brink of economic
ruin”.
Prior to 1985 the New Zealand Dollar was controlled centrally by the Reserve Bank of New
Zealand at a fixed exchange rate to the United States Dollar. In early 1984 the Deputy Governor of the
Reserve Bank, Roderick Deane, became concerned that the dollar had become significantly overvalued
and was vulnerable to currency speculation on the financial markets in the event of a "significant
political event"
Media speculation followed a leak that an incoming Labour government would be likely to
significantly devalue the dollar upon election. The Reserve Bank advised the Prime Minister, Sir
Robert Muldoon, that the dollar should be devalued. Muldoon ignored the advice, owing to his belief
that it would hurt poorer New Zealanders in the medium term. In June 1984 Muldoon announced a
snap election to be held in July. This caused an immediate run on the dollar, as currency speculators
believed a Labour win would mean devaluation. Despite a deepening foreign exchange crisis, Muldoon
continued to refuse to devalue, forcing the Reserve Bank to take some extraordinary steps, such as the
temporary closing the forex markets for a short period of time to slow down devaluation.
On 14 July, Muldoon and National lost the general election, and the Fourth Labour government was
sworn in on 26 July.
By constitutional convention, between election day and the return of the writs for the election, an
outgoing caretaker government defers to the wishes of an incoming government. On Sunday 17 July,
following a meeting between Reserve Bank officials (Reserve Bank Governor Spencer Russell, deputy
Roderick Deane, and Treasury Secretary Bernie Galvin) and the incoming government at Auckland
International Airport, the incoming government requested that the dollar be devalued.
The outgoing Prime Minister Sir Robert Muldoon refused. The foreign exchange market was closed the
following day. In an impromptu television interview with Richard Harman that evening, Muldoon
stated he had been asked to devalue the currency by the incoming government but was not going to.
Prime Minister elect David Lange responded with an interview of his own. He stated: "This nation is at
risk. That is how basic it is. This Prime Minister outgoing, beaten, has, in the course of one television
interview tried to do more damage to the New Zealand economy than any statement ever made. He has
actually alerted the world to a crisis. And like King Canute he stands there and says everyone is wrong
but me".
This provoked a further crisis in the foreign exchange markets - when the exchange was finally opened
on 19 July, millions of foreign exchange dollars left the country as currency speculators expected a
devaluation of the New Zealand dollar. Lange later remarked "We actually were reduced to asking our
diplomatic posts abroad how much money they could draw down on their credit cards! That is the
extent of the calamity that had been ground into us by the briefings that we'd got".
This crisis allowed The business round table with name such as Roger Douglas Roger Kerr , Alan
Gibbs, David Richwhite, Doug Myers, Peter Shirtcliffe as amongst the secret donors. These people
are , according to their website ;
The New Zealand Business Roundtable (NZBR), a market-oriented thinktank, operates from
Wellington, New Zealand. Businessman Robert McLeod chairs the organisation, with Bill Gallagher
MBE, Nick Calavrias and Bill Day as Vice-Chairs. The Executive Director is Roger Kerr. Members,
Devaluation
8 March 1983 The New Zealand Dollar was devalued by 6% against its weighted basket of currencies.
The middle rate in terms of the U.S. Dollar was consequently changed to US$0.655=$NZ1,
representing a depreciation of 8.3% from the middle rate of the previous day.
8 August 1983 The Reserve Bank practice of fixing daily exchange rates for the New Zealand Dollar
against the U.S. Dollar was abandoned, allowing the unit to follow international currency movements.
1984 At the end of 1984, almost all foreign exchange controls were in the process of removal.
31 December 1984 The buying and selling rates for the U.S. Dollar were US$0.4723 and US$0.4823,
respectively, per $NZ1.
4 March 1985 The practice of establishing a fixed exchange rate with respect to a trade-weighted
basket of currencies was terminated.
The exchange rate for the New Zealand Dollar was to be determined on the basis of supply and demand
in the foreign exchange market.
The Reserve Bank ceased to quote official buying and selling rates for the New Zealand Dollar, but
would enter the market in periods of disturbed conditions.
31 December 1985The buying and selling rates for the U.S. Dollar were US$0.499 and US$0.5,
respectively, per $NZ1.
1986 The $NZ25 tax on foreign travel tickets was abolished.
The Effective Rate was eliminated and replaced by the Interbank Rate which was to be determined by
supply and demand conditions in the exchange market. The Reserve Bank retained discretionary power
to intervene in the market.
31 December 1986 The buying and selling rates for the U.S. Dollar were US$0.5250 and
US$0.5240, respectively, per $NZ1.
31 December 1987 The buying and selling rates for the U.S. Dollar were US$0.6595 and
US$0.6585, respectively, per $NZ1.
1989 During 1989, a number of exchange control regulations were abolished.
So to review
The currency of New Zealand is the New Zealand Dollar. In 1971, the Effective Rate was created and
the currency's link to Pound Sterling was replaced with a pegging to the U.S. Dollar. In 1973, the New
Zealand Dollar was placed on a controlled, floating basis. Exchange rate is computed from the value of
the New Zealand Dollar, which is determined on the basis of the fixed relationship between the New
Zealand Dollar and a basket of currencies representing New Zealand's main trading partners. The
weights of the currencies included in the basket are established in accordance with their proportionate
share of New Zealand's total current overseas receipts and payments; the weights are adjusted
quarterly. From 1979, a crawling-peg system of monthly depreciation adopted.
In March 1985, the New Zealand dollar was floated as part of a broad-based deregulation of financial
markets. The rate was determined by the supply and demand in foreign exchange market. The Reserve
Bank has not intervened in the foreign exchange market since the float. In mid-October 1993, the New
Zealand dollar was worth less on a trade-weighted basis than at the time of the float. In early
November, the New Zealand Dollar was trading at 65 U.S. cents (buying rate: US$0.6515 and selling
rate: US$0.6520), having appreciated 6% against the U.S. Dollar in the previous 12 months.
This brings us to the mid eighties ,during the 1970s and early 1980s, New Zealand was faced with a
The middle rate in terms of the U.S. Dollar was consequently changed to US$0.655=$NZ1,
representing a depreciation of 8.3% from the middle rate of the previous day.
8 August 1983 The Reserve Bank practice of fixing daily exchange rates for the New Zealand Dollar
against the U.S. Dollar was abandoned, allowing the unit to follow international currency movements.
1984 At the end of 1984, almost all foreign exchange controls were in the process of removal.
31 December 1984 The buying and selling rates for the U.S. Dollar were US$0.4723 and US$0.4823,
respectively, per $NZ1.
4 March 1985 The practice of establishing a fixed exchange rate with respect to a trade-weighted
basket of currencies was terminated.
The exchange rate for the New Zealand Dollar was to be determined on the basis of supply and demand
in the foreign exchange market.
The Reserve Bank ceased to quote official buying and selling rates for the New Zealand Dollar, but
would enter the market in periods of disturbed conditions.
31 December 1985The buying and selling rates for the U.S. Dollar were US$0.499 and US$0.5,
respectively, per $NZ1.
1986 The $NZ25 tax on foreign travel tickets was abolished.
The Effective Rate was eliminated and replaced by the Interbank Rate which was to be determined by
supply and demand conditions in the exchange market. The Reserve Bank retained discretionary power
to intervene in the market.
31 December 1986 The buying and selling rates for the U.S. Dollar were US$0.5250 and
US$0.5240, respectively, per $NZ1.
31 December 1987 The buying and selling rates for the U.S. Dollar were US$0.6595 and
US$0.6585, respectively, per $NZ1.
1989 During 1989, a number of exchange control regulations were abolished.
So to review
The currency of New Zealand is the New Zealand Dollar. In 1971, the Effective Rate was created and
the currency's link to Pound Sterling was replaced with a pegging to the U.S. Dollar. In 1973, the New
Zealand Dollar was placed on a controlled, floating basis. Exchange rate is computed from the value of
the New Zealand Dollar, which is determined on the basis of the fixed relationship between the New
Zealand Dollar and a basket of currencies representing New Zealand's main trading partners. The
weights of the currencies included in the basket are established in accordance with their proportionate
share of New Zealand's total current overseas receipts and payments; the weights are adjusted
quarterly. From 1979, a crawling-peg system of monthly depreciation adopted.
In March 1985, the New Zealand dollar was floated as part of a broad-based deregulation of financial
markets. The rate was determined by the supply and demand in foreign exchange market. The Reserve
Bank has not intervened in the foreign exchange market since the float. In mid-October 1993, the New
Zealand dollar was worth less on a trade-weighted basis than at the time of the float. In early
November, the New Zealand Dollar was trading at 65 U.S. cents (buying rate: US$0.6515 and selling
rate: US$0.6520), having appreciated 6% against the U.S. Dollar in the previous 12 months.
This brings us to the mid eighties ,during the 1970s and early 1980s, New Zealand was faced with a
floating the dollar
realigned to a new Official Rate of US$1.216 with a 4.5% fluctuation range, with unchanged gold
content.
The currency's link to the Pound Sterling was replaced with a pegging of the New Zealand Dollar to the
U.S. Dollar. An Effective Rate of US$1.195 was also created with buying and selling rates of
US$1.2017 and US$1.1887 per New Zealand unit.
23 June 1972 With the completed failure of Sterling on 23 June 1972, the Sterling Area was liquidated.
15 February 1973 Following the U.S. Dollar devaluation in February 1973, the Official Rate of the
New Zealand Dollar was realigned to US$1.351, with unchanged gold content.
9 July 1973 Wellington's currency was placed on a controlled, floating basis with the Effective Rate
determined by a basket of currencies of New Zealand's principle trading partners.
10 September 1973The controlled, floating Effective Rate was revised upward by 10%.
25 September 1974 Wellington, following Australia's lead, slashed the Effective Rate for the New
Zealand currency by 9%.
8 August 1975 The buying and selling rates for the U.S. Dollar were US$1.2479 and US$1.2579,
respectively, per $NZ1.
10 August 1975 The Reserve Bank of New Zealand adjusts the exchange rate for the U.S.
Dollar daily so as to maintain the effective relationship between the New Zealand Dollar and the
currencies of the main trading partners. Except for the Australian Dollar and the Pound Sterling, the
rate for spot transactions in currencies quoted by the New Zealand commercial banks are based on the
closing buying and selling rates of the previous day in London.
11 August 1975 The Effective Rate was depreciated by 15%.
29 July 1976 The New Zealand Dollar was partially devalued, as a tax was placed on travel
abroad, thus creating a Resident Travel Rate.
30 November 1976 The New Zealand Dollar was depreciated from US$0.9738=$NZ1 to
US$0.9063=$NZ1.
The Effective Rate was depreciated by 7%.
21 June 1979 The Effective Rate was downgraded 5% and a crawling-peg system of monthly
depreciations adopted.
The Resident Travel Rate was abolished and a flat travel tax imposed.
It was announced that the Reserve Bank would make a small regular adjustments in the rate,
each of less than 0.5%, reflecting relative cost and price developments in New Zealand and in its main
trading partners.
Remember at this time 1980-1981There was a world-wide recession.
and a little more important 1981 US over-the-counter derivatives were born with the 1st currency
“swap.”
June 1982 The crawling-peg system of depreciation was abandoned, the Effective Rate to be
periodically adjusted.
22 June 1982 It was announced that the Effective (trade-weighted) Exchange Rate index of the New
Zealand Dollar would be pegged to an index level of 83.4.
31 December 1982The buying and selling rates for the U.S. Dollar were $NZ1.3559 and $NZ1.3746,
respectively, per US$1.
content.
The currency's link to the Pound Sterling was replaced with a pegging of the New Zealand Dollar to the
U.S. Dollar. An Effective Rate of US$1.195 was also created with buying and selling rates of
US$1.2017 and US$1.1887 per New Zealand unit.
23 June 1972 With the completed failure of Sterling on 23 June 1972, the Sterling Area was liquidated.
15 February 1973 Following the U.S. Dollar devaluation in February 1973, the Official Rate of the
New Zealand Dollar was realigned to US$1.351, with unchanged gold content.
9 July 1973 Wellington's currency was placed on a controlled, floating basis with the Effective Rate
determined by a basket of currencies of New Zealand's principle trading partners.
10 September 1973The controlled, floating Effective Rate was revised upward by 10%.
25 September 1974 Wellington, following Australia's lead, slashed the Effective Rate for the New
Zealand currency by 9%.
8 August 1975 The buying and selling rates for the U.S. Dollar were US$1.2479 and US$1.2579,
respectively, per $NZ1.
10 August 1975 The Reserve Bank of New Zealand adjusts the exchange rate for the U.S.
Dollar daily so as to maintain the effective relationship between the New Zealand Dollar and the
currencies of the main trading partners. Except for the Australian Dollar and the Pound Sterling, the
rate for spot transactions in currencies quoted by the New Zealand commercial banks are based on the
closing buying and selling rates of the previous day in London.
11 August 1975 The Effective Rate was depreciated by 15%.
29 July 1976 The New Zealand Dollar was partially devalued, as a tax was placed on travel
abroad, thus creating a Resident Travel Rate.
30 November 1976 The New Zealand Dollar was depreciated from US$0.9738=$NZ1 to
US$0.9063=$NZ1.
The Effective Rate was depreciated by 7%.
21 June 1979 The Effective Rate was downgraded 5% and a crawling-peg system of monthly
depreciations adopted.
The Resident Travel Rate was abolished and a flat travel tax imposed.
It was announced that the Reserve Bank would make a small regular adjustments in the rate,
each of less than 0.5%, reflecting relative cost and price developments in New Zealand and in its main
trading partners.
Remember at this time 1980-1981There was a world-wide recession.
and a little more important 1981 US over-the-counter derivatives were born with the 1st currency
“swap.”
June 1982 The crawling-peg system of depreciation was abandoned, the Effective Rate to be
periodically adjusted.
22 June 1982 It was announced that the Effective (trade-weighted) Exchange Rate index of the New
Zealand Dollar would be pegged to an index level of 83.4.
31 December 1982The buying and selling rates for the U.S. Dollar were $NZ1.3559 and $NZ1.3746,
respectively, per US$1.
Patient Zero and Roger
the market in interest-rate caps and was caught by a rise in volatility. Colleagues only half-blame cap
king Steve Edelson, since management didn't question his valuations.
Meanwhile the regulators were trying to get some of these new risks properly reported and backed with
appropriate capital. In July 1988 the Basle Committee on Banking Supervision, chaired by Peter
Cooke, issued its guidelines on risk-weighted capital charges for credit risk. They were crude but
effective for 10 years in forcing banks to build up more capital. And it was vital. "By the end of the
1980s Chase, Citi and Chemical Bank were practically bankrupt," recalls Lamfalussy. Japanese banks
had special dispensation to count part of their equity holdings as capital. That came back to haunt them
when Japan's bubble economy burst.
Ok but where did this leave little old New Zealand... Remember that ..
Financial technology was primitive. Spreadsheets were still done by hand inside the Wall Street banks,
and Vydec still vied with Wang in the steno pools in the major law firms. Andy Krieger, the young
derivatives trader dubbed “Patient Zero” who in 1987 would single-handedly short “the entire
money supply of New Zealand,” was still studying South Asian philosophy.[14] Global OTC
derivatives, had they been tracked back then by the Bank for International Settlements, would have had
an aggregate notional amount of near zero.
The above gives you a taste of what was happening around and before the currency crisis that
hit New Zealand. The highlighted text, I feel are the important highlights of the period. Remember that
the Prime Minister of England Hon Margret Thatcher modeled her rein on books such as “ The Road
to Serfdom” by F.A. Hayek who argued that Socialist ideals cannot be accomplished , except by means
that few would approve of.
New Zealand became part of a global economy. With no restrictions on overseas money coming into
the country ( remember the Chicago Mercantile Exchange) the focus in the economy shifted from the
productive sector to finance. Finance capital outstripped industrial capital and redundancies occurred in
manufacturing industry; approximately 76,000 manufacturing jobs were lost between 1987 and 1992.
During wage bargaining in 1986 and 1987, employers started to bargain harder. Lock-outs were
not uncommon; the most spectacular occurred at a pulp and paper mill owned by Fletcher Challenge
and forced changes to work practices and a no-strike commitment from the union. Later settlements
forced more concessions from unions, including below-inflation wage increases, a cut in real wages.
There was a structural change in the economy from industry to services, which, along with the arrival
of trans-Tasman retail chains and an increasingly cosmopolitan hospitality industry, led to a new ‘café
culture’ enjoyed by more affluent New Zealanders. Some argue that for the rest of the population,
Rogernomics failed to deliver the higher standard of living promised by its advocates.
We will come back to this point later.
Now that we understand the history and what was happening in other parts of the world, lets look at the
New Zealand dollar
Changes to the exchange rate regime; U.S. Dollar per New Zealand Dollar....
21 November 1967 The New Zealand Dollar ($NZ) had its Official Rate devalued from US$1.39 to
US$1.12, coming after the Sterling devaluation.
15 August 1971 Following the devaluation of U.S. Dollar, the New Zealand Dollar, through its link to
the Pound Sterling fixed at $NZ2.1429=£1.00, began to appreciate against the American unit.
23 December 1971 The devaluation of the U.S. Dollar on December 18th, the New Zealand was
king Steve Edelson, since management didn't question his valuations.
Meanwhile the regulators were trying to get some of these new risks properly reported and backed with
appropriate capital. In July 1988 the Basle Committee on Banking Supervision, chaired by Peter
Cooke, issued its guidelines on risk-weighted capital charges for credit risk. They were crude but
effective for 10 years in forcing banks to build up more capital. And it was vital. "By the end of the
1980s Chase, Citi and Chemical Bank were practically bankrupt," recalls Lamfalussy. Japanese banks
had special dispensation to count part of their equity holdings as capital. That came back to haunt them
when Japan's bubble economy burst.
Ok but where did this leave little old New Zealand... Remember that ..
Financial technology was primitive. Spreadsheets were still done by hand inside the Wall Street banks,
and Vydec still vied with Wang in the steno pools in the major law firms. Andy Krieger, the young
derivatives trader dubbed “Patient Zero” who in 1987 would single-handedly short “the entire
money supply of New Zealand,” was still studying South Asian philosophy.[14] Global OTC
derivatives, had they been tracked back then by the Bank for International Settlements, would have had
an aggregate notional amount of near zero.
The above gives you a taste of what was happening around and before the currency crisis that
hit New Zealand. The highlighted text, I feel are the important highlights of the period. Remember that
the Prime Minister of England Hon Margret Thatcher modeled her rein on books such as “ The Road
to Serfdom” by F.A. Hayek who argued that Socialist ideals cannot be accomplished , except by means
that few would approve of.
New Zealand became part of a global economy. With no restrictions on overseas money coming into
the country ( remember the Chicago Mercantile Exchange) the focus in the economy shifted from the
productive sector to finance. Finance capital outstripped industrial capital and redundancies occurred in
manufacturing industry; approximately 76,000 manufacturing jobs were lost between 1987 and 1992.
During wage bargaining in 1986 and 1987, employers started to bargain harder. Lock-outs were
not uncommon; the most spectacular occurred at a pulp and paper mill owned by Fletcher Challenge
and forced changes to work practices and a no-strike commitment from the union. Later settlements
forced more concessions from unions, including below-inflation wage increases, a cut in real wages.
There was a structural change in the economy from industry to services, which, along with the arrival
of trans-Tasman retail chains and an increasingly cosmopolitan hospitality industry, led to a new ‘café
culture’ enjoyed by more affluent New Zealanders. Some argue that for the rest of the population,
Rogernomics failed to deliver the higher standard of living promised by its advocates.
We will come back to this point later.
Now that we understand the history and what was happening in other parts of the world, lets look at the
New Zealand dollar
Changes to the exchange rate regime; U.S. Dollar per New Zealand Dollar....
21 November 1967 The New Zealand Dollar ($NZ) had its Official Rate devalued from US$1.39 to
US$1.12, coming after the Sterling devaluation.
15 August 1971 Following the devaluation of U.S. Dollar, the New Zealand Dollar, through its link to
the Pound Sterling fixed at $NZ2.1429=£1.00, began to appreciate against the American unit.
23 December 1971 The devaluation of the U.S. Dollar on December 18th, the New Zealand was
Hammersmith and Andy
Out of the volatility grew increasing trade in swaps, futures and options. IBM and the World Bank did
the first well-publicized interest and currency swap in 1981.
The Chicago Mercantile Exchange had started trading currency futures in 1972, but in the 1980s
exchange-traded financial futures took off, with the launch of the Eurodollar future on the Merc
in 1981, the opening of Liffe in London in 1982 and Matif in Paris in 1986.
Early heroes of the derivatives industry were Merc chairman, Leo Malamed, academics Merton Miller,
followed by Fischer Black and Myron Scholes (devisers of the Black-Scholes option pricing model),
and Richard Sandor, tireless promoter of derivatives and securitizations.
Midland Bank and Commerzbank fell foul of inexorable interest-rate movements in the 1980s which
they could have hedged with derivatives. The frequency and scale of financial collapses and scandals
goes up. Johnson Matthey Bankers in London, Drysdale Securities and Penn Square Bank in the US
and Banco Ambrosiano in Italy were early casualties. A little close to home, Ambrosiano chairman
Roberto Calvi, "god's banker", was found hanging from Blackfriars Bridge near Euromoney
headquarters, and erstwhile papal bodyguard Chicago-born archbishop Paul Marcinkus disappeared for
a while. In Spain, the Rumasa empire of José María Ruiz Mateos, including 17 banks, was taken over
by the government. In Germany, the private bank Schröder Münchmeyer Hengst collapsed, pitching
senior partner and celebrated chairman of the Frankfurt stock exchange, Ferdinand Graf von Galen,
onto the street and, unfairly, into jail. The real culprit was bulldozer king Horst-Dieter Esch. Then the
US government stepped in to save Continental Illinois.
The mid-1980s in the US was the era of takeover barons, corporate raiders and leveraged buyouts.
Henry Kravis's finest hour at buyout firm Kohlberg Kravis Roberts was the $25 billion takeover of RJR
Nabisco in 1988. At Drexel Burnham Lambert, junk bond king Michael Milken's inside deals with Ivan
Boesky landed both of them in jail and led ultimately to the forced liquidation of Drexel. When US
buy-outs turned sour, the US firms that financed them collapsed or, like First Boston, had to be
rescued.
It was investing in junk bonds that triggered the US Savings & Loans scandal, in which scores of S&Ls
whose bad and sometimes crooked lending was bailed out by the state-backed deposit insurance
system, costing the US taxpayer around $300 billion. Canny private US real-estate investors, such as
Robert Bass, made fortunes buying up distressed real-estate-based debt that had flooded onto the
market.
Guinness left a bad taste
Morgan Grenfell's investment in Milken's deals uncovered the Guinness affair, unseating Guinness
chairman Ernest Saunders and Morgan Grenfell stars Olivier Roux and Roger Seelig.
Craven was called in to put Morgan Grenfell together again, selling it his Phoenix boutique as part of
the deal. Phoenix had been the honest broker in 23 of London's pre-Big Bang mergers. But Craven's
biggest deal was yet to come: selling Morgan Grenfell to Deutsche Bank in 1989.
In the late 1980s the leverage available through derivatives threw up some volatile P&L figures.
Volkswagen came unstuck on some unauthorized currency deals with the National Bank of
Hungary. The broker in the middle Joachim Schmidt did a runner. The London borough of
Hammersmith & Fulham lost $500 million in swaps and swaptions and landed in a celebrated
court case. Britain's law lords controversially ruled the swaps null and void (ultra vires). Bankers
Trust's star currency trader, Andy Krieger, made a killing shorting the New Zealand dollar.
Merrill Lynch and others lost a bundle on new-fangled mortgage strips (this might come back to
haunt us ). Deutsche Bank rescued Klöckner & Co after its dealer Wolfgang Zeschmar's $380 million
loss on oil futures. Chemical Bank, thinking it had a better option-pricing model than the street, became
the first well-publicized interest and currency swap in 1981.
The Chicago Mercantile Exchange had started trading currency futures in 1972, but in the 1980s
exchange-traded financial futures took off, with the launch of the Eurodollar future on the Merc
in 1981, the opening of Liffe in London in 1982 and Matif in Paris in 1986.
Early heroes of the derivatives industry were Merc chairman, Leo Malamed, academics Merton Miller,
followed by Fischer Black and Myron Scholes (devisers of the Black-Scholes option pricing model),
and Richard Sandor, tireless promoter of derivatives and securitizations.
Midland Bank and Commerzbank fell foul of inexorable interest-rate movements in the 1980s which
they could have hedged with derivatives. The frequency and scale of financial collapses and scandals
goes up. Johnson Matthey Bankers in London, Drysdale Securities and Penn Square Bank in the US
and Banco Ambrosiano in Italy were early casualties. A little close to home, Ambrosiano chairman
Roberto Calvi, "god's banker", was found hanging from Blackfriars Bridge near Euromoney
headquarters, and erstwhile papal bodyguard Chicago-born archbishop Paul Marcinkus disappeared for
a while. In Spain, the Rumasa empire of José María Ruiz Mateos, including 17 banks, was taken over
by the government. In Germany, the private bank Schröder Münchmeyer Hengst collapsed, pitching
senior partner and celebrated chairman of the Frankfurt stock exchange, Ferdinand Graf von Galen,
onto the street and, unfairly, into jail. The real culprit was bulldozer king Horst-Dieter Esch. Then the
US government stepped in to save Continental Illinois.
The mid-1980s in the US was the era of takeover barons, corporate raiders and leveraged buyouts.
Henry Kravis's finest hour at buyout firm Kohlberg Kravis Roberts was the $25 billion takeover of RJR
Nabisco in 1988. At Drexel Burnham Lambert, junk bond king Michael Milken's inside deals with Ivan
Boesky landed both of them in jail and led ultimately to the forced liquidation of Drexel. When US
buy-outs turned sour, the US firms that financed them collapsed or, like First Boston, had to be
rescued.
It was investing in junk bonds that triggered the US Savings & Loans scandal, in which scores of S&Ls
whose bad and sometimes crooked lending was bailed out by the state-backed deposit insurance
system, costing the US taxpayer around $300 billion. Canny private US real-estate investors, such as
Robert Bass, made fortunes buying up distressed real-estate-based debt that had flooded onto the
market.
Guinness left a bad taste
Morgan Grenfell's investment in Milken's deals uncovered the Guinness affair, unseating Guinness
chairman Ernest Saunders and Morgan Grenfell stars Olivier Roux and Roger Seelig.
Craven was called in to put Morgan Grenfell together again, selling it his Phoenix boutique as part of
the deal. Phoenix had been the honest broker in 23 of London's pre-Big Bang mergers. But Craven's
biggest deal was yet to come: selling Morgan Grenfell to Deutsche Bank in 1989.
In the late 1980s the leverage available through derivatives threw up some volatile P&L figures.
Volkswagen came unstuck on some unauthorized currency deals with the National Bank of
Hungary. The broker in the middle Joachim Schmidt did a runner. The London borough of
Hammersmith & Fulham lost $500 million in swaps and swaptions and landed in a celebrated
court case. Britain's law lords controversially ruled the swaps null and void (ultra vires). Bankers
Trust's star currency trader, Andy Krieger, made a killing shorting the New Zealand dollar.
Merrill Lynch and others lost a bundle on new-fangled mortgage strips (this might come back to
haunt us ). Deutsche Bank rescued Klöckner & Co after its dealer Wolfgang Zeschmar's $380 million
loss on oil futures. Chemical Bank, thinking it had a better option-pricing model than the street, became
The Brady bunch
Citibank's John Reed gave a push in the right direction with a unilateral move, in May 1987, to take a
$3 billion reserve on his bank's emerging-market debt. Reed knew he would be hated: he was forcing
other banks, such as the crippled Manufacturers Hanover, to follow suit.
Mulford, who was then treasury under-secretary, wanted to take things to the next stage, passing on
that write-off to reduce the overall debt of the countries themselves. He feared that otherwise the
nominal amount of the debt would simply be capitalized and passed from the private to the public
sector. "There had to be some kind of debt relief for these countries," he said.
Origins of the Brady Plan
The October 1987 stock market crash showed that there was no escape for investors besides US,
Japanese or German government bonds. Nicholas Brady, who completed a report on that crash, was
appointed treasury secretary the next year. At a G7 meeting in Bonn there were the first discussions of
what later became the Brady Plan - a refinancing that forced banks to provide some debt relief to the
borrower. "I produced the 'truth serum paper'," recalls Mulford, "- my plan to get everyone to recognize
the problem."
The Brady Plan was announced in September. It would involve debt reduction, although the terms
hadn't been hammered out. Towards the end of that year JP Morgan put together a deal for Mexico
which anticipated Brady bonds. Creditor banks could exchange their loans at a discount for 20-year
bonds whose principal was guaranteed by a US treasury zero-coupon note. Mexico, the guinea-pig, did
its first Brady deal in February 1990. Some sources credit Gerald Corrigan, then president of the New
York Federal Reserve, with the real brainwork. Others mention Angel Gurria, the technical wizard at
the Mexican treasury, now finance minister. Still others call it the Mulford Plan. Certainly Mulford was
the figure who browbeat the financial community into accepting debt reduction.
Other countries followed Mexico: the Philippines, Uruguay, Nigeria, Brazil, Argentina, Jordan,
Bulgaria, Poland, Ecuador, Peru. But there was a catch. The debt had passed from bank balance sheets
to a wider investor universe. Bondholders had rights that couldn't so easily be modified by borrowers
and central banks. Heaven and earth - that is 17 billion of US taxpayers' dollars - were moved, in the
1995 tequila crisis, to prevent Mexico from defaulting on its Bradys.
Of course, the bonds could be marked down to their guaranteed zero-coupon value, but thereafter
Mexico's ability to refinance would be severely impaired. Some countries have bought back their
Bradys, to capture the discount. But the first Brady default will send shockwaves through the market.
Russia refused to do a Brady refinancing in 1994, showing foresight, since in 1999 it came within an
ace of defaulting on its ordinary Eurobonds. So did Pakistan. A default would deal a severe blow to a
market that has never seen a sovereign failure.
A tug on the reins
"We monitored the huge development of international bank lending at the BIS," says Lamfalussy. "It
was very difficult to slow down the enthusiasm of the banks." But apart from monitoring, the BIS was
only marginally involved in working through the debt crisis. It turned its attention to making sense of
the innovation in the financial markets, the risks of derivatives and netting schemes, and the roller-
coaster of exchange rate and interest rate volatility.
That same year, 1974, Franklin National Bank in New York collapsed because of currency speculation
by its major shareholder, Michele Sindona, the same who later hastened the collapse of Banco
Ambrosiano in Italy and Luxembourg. At the end of 1979 came the scandal of Bernie Cornfeld's
pyramid fund management scheme Investors Overseas Services, from which Robert Vesco allegedly
absconded with $240 million. Vesco was last heard of in a jail in Cuba.
$3 billion reserve on his bank's emerging-market debt. Reed knew he would be hated: he was forcing
other banks, such as the crippled Manufacturers Hanover, to follow suit.
Mulford, who was then treasury under-secretary, wanted to take things to the next stage, passing on
that write-off to reduce the overall debt of the countries themselves. He feared that otherwise the
nominal amount of the debt would simply be capitalized and passed from the private to the public
sector. "There had to be some kind of debt relief for these countries," he said.
Origins of the Brady Plan
The October 1987 stock market crash showed that there was no escape for investors besides US,
Japanese or German government bonds. Nicholas Brady, who completed a report on that crash, was
appointed treasury secretary the next year. At a G7 meeting in Bonn there were the first discussions of
what later became the Brady Plan - a refinancing that forced banks to provide some debt relief to the
borrower. "I produced the 'truth serum paper'," recalls Mulford, "- my plan to get everyone to recognize
the problem."
The Brady Plan was announced in September. It would involve debt reduction, although the terms
hadn't been hammered out. Towards the end of that year JP Morgan put together a deal for Mexico
which anticipated Brady bonds. Creditor banks could exchange their loans at a discount for 20-year
bonds whose principal was guaranteed by a US treasury zero-coupon note. Mexico, the guinea-pig, did
its first Brady deal in February 1990. Some sources credit Gerald Corrigan, then president of the New
York Federal Reserve, with the real brainwork. Others mention Angel Gurria, the technical wizard at
the Mexican treasury, now finance minister. Still others call it the Mulford Plan. Certainly Mulford was
the figure who browbeat the financial community into accepting debt reduction.
Other countries followed Mexico: the Philippines, Uruguay, Nigeria, Brazil, Argentina, Jordan,
Bulgaria, Poland, Ecuador, Peru. But there was a catch. The debt had passed from bank balance sheets
to a wider investor universe. Bondholders had rights that couldn't so easily be modified by borrowers
and central banks. Heaven and earth - that is 17 billion of US taxpayers' dollars - were moved, in the
1995 tequila crisis, to prevent Mexico from defaulting on its Bradys.
Of course, the bonds could be marked down to their guaranteed zero-coupon value, but thereafter
Mexico's ability to refinance would be severely impaired. Some countries have bought back their
Bradys, to capture the discount. But the first Brady default will send shockwaves through the market.
Russia refused to do a Brady refinancing in 1994, showing foresight, since in 1999 it came within an
ace of defaulting on its ordinary Eurobonds. So did Pakistan. A default would deal a severe blow to a
market that has never seen a sovereign failure.
A tug on the reins
"We monitored the huge development of international bank lending at the BIS," says Lamfalussy. "It
was very difficult to slow down the enthusiasm of the banks." But apart from monitoring, the BIS was
only marginally involved in working through the debt crisis. It turned its attention to making sense of
the innovation in the financial markets, the risks of derivatives and netting schemes, and the roller-
coaster of exchange rate and interest rate volatility.
That same year, 1974, Franklin National Bank in New York collapsed because of currency speculation
by its major shareholder, Michele Sindona, the same who later hastened the collapse of Banco
Ambrosiano in Italy and Luxembourg. At the end of 1979 came the scandal of Bernie Cornfeld's
pyramid fund management scheme Investors Overseas Services, from which Robert Vesco allegedly
absconded with $240 million. Vesco was last heard of in a jail in Cuba.
Petro dollars p9
The net effect of petrodollars on the world economy, however, was of rapid price inflation,
as too much cash chased too few goods. When US President Reagan's administration addressed
inflation by hiking interest rates, the emerging-market borrowers began to suffer. Zaire and
Turkey had already defaulted in 1976 and 1977. After 1980 the high interest rates, close to 20%
for six-month Libor, shook country after country off its perch.
Interest rates weren't the only reason. The drive for 19th-century-style industrial development
and import substitution piled up debt, so did the crippling price of oil imports. Without
structural reforms there was no increase in productivity. The World Bank and other multilateral
lending agencies were driven by lending volume. So were the banks.
Some of the early casualties were Zaire, Poland, Romania. Hungary might have followed, but its case
was somewhat different. The financial wizardry of its deputy central bank governor Janos Fekete had
kept the country afloat on short-term debt, but now he had reached an impasse. Fekete's good relations
with Fritz Leutwiler at the Bank for International Settlements, coordinated with Gordon Richardson at
the Bank of England - who saved the UK banking system in the 1970s - and Karl-Otto Pöhl at the
Bundesbank, got Hungary the lifeblood it needed, a $510 million injection of funds, pending its
membership of the IMF.
Turkey having suffered its rescheduling shock in 1977, had three more years of chaos until the military
coup of 1980. That set Turgut Ozal, as deputy prime minister, on his path to the presidency, and the
reform of the Turkish economy.
At around this time, Craven, having formed his own boutique, Phoenix Securities, was advising the
IMF on changing its charter, so that, like the World Bank, it could tap the capital markets and act as a
turntable, directing petrodollars to countries with balance-of-payments problems. It never happened.
Craven was also discussing a $3 billion financing for the Mexican oil company Pemex.
But that was overtaken by events. In August 1982 Mexico announced that it couldn't meet its foreign
debt obligations. "The [April 1982] Falklands war caused the Mexican crisis," opines Eurocredit
veteran Minos Zombanakis: "The investors wouldn't refinance the Mexican investment funds [fearful
that the US-Latin American relationship was ruined]." Brazil and Argentina soon followed. In the 18
months from January 1983 to June 1984, 19 countries rescheduled a total of $95 billion of debt.
It was hand-to-mouth stuff, trying to persuade banks to stay in the game, often to put in new money.
Leading bankers, who had met at Ditchley Park in England the year before and agreed to pool more
aggregate data on cross-border lending, founded the Institute of International Finance. Some heroes
emerged during that era: Jacques de Larosière, managing director of the IMF; Paul Volcker, chairman
of the US Federal Reserve; Bill Rhodes, head of rescheduling at Citibank.
The key to a deadlock
There were also smaller heroes, who started to disabuse the banks about the street value of their
emerging-market loans: Marty Schubert at Eurinam and Victor Segal at Singer & Friedlander were
among the first to buy and sell, or broker, these impaired loans at discounted prices. It wasn't long
before discounted debt was being quoted on Reuters screens and traded by banks and even investors. It
turned out to be the key to a deadlock between governments, banks and the major borrowers in default.
In 1985 US treasury secretary James Baker announced the Baker Plan, promising new money to
countries burdened with debt, in an attempt to keep banks in the game. It failed. European banks had
written down much of their emerging market exposure but the US banks had not. They were
maintaining the accounting myth that it was worth 100 cents on the dollar, while doing deals between
themselves at 50 cents.
as too much cash chased too few goods. When US President Reagan's administration addressed
inflation by hiking interest rates, the emerging-market borrowers began to suffer. Zaire and
Turkey had already defaulted in 1976 and 1977. After 1980 the high interest rates, close to 20%
for six-month Libor, shook country after country off its perch.
Interest rates weren't the only reason. The drive for 19th-century-style industrial development
and import substitution piled up debt, so did the crippling price of oil imports. Without
structural reforms there was no increase in productivity. The World Bank and other multilateral
lending agencies were driven by lending volume. So were the banks.
Some of the early casualties were Zaire, Poland, Romania. Hungary might have followed, but its case
was somewhat different. The financial wizardry of its deputy central bank governor Janos Fekete had
kept the country afloat on short-term debt, but now he had reached an impasse. Fekete's good relations
with Fritz Leutwiler at the Bank for International Settlements, coordinated with Gordon Richardson at
the Bank of England - who saved the UK banking system in the 1970s - and Karl-Otto Pöhl at the
Bundesbank, got Hungary the lifeblood it needed, a $510 million injection of funds, pending its
membership of the IMF.
Turkey having suffered its rescheduling shock in 1977, had three more years of chaos until the military
coup of 1980. That set Turgut Ozal, as deputy prime minister, on his path to the presidency, and the
reform of the Turkish economy.
At around this time, Craven, having formed his own boutique, Phoenix Securities, was advising the
IMF on changing its charter, so that, like the World Bank, it could tap the capital markets and act as a
turntable, directing petrodollars to countries with balance-of-payments problems. It never happened.
Craven was also discussing a $3 billion financing for the Mexican oil company Pemex.
But that was overtaken by events. In August 1982 Mexico announced that it couldn't meet its foreign
debt obligations. "The [April 1982] Falklands war caused the Mexican crisis," opines Eurocredit
veteran Minos Zombanakis: "The investors wouldn't refinance the Mexican investment funds [fearful
that the US-Latin American relationship was ruined]." Brazil and Argentina soon followed. In the 18
months from January 1983 to June 1984, 19 countries rescheduled a total of $95 billion of debt.
It was hand-to-mouth stuff, trying to persuade banks to stay in the game, often to put in new money.
Leading bankers, who had met at Ditchley Park in England the year before and agreed to pool more
aggregate data on cross-border lending, founded the Institute of International Finance. Some heroes
emerged during that era: Jacques de Larosière, managing director of the IMF; Paul Volcker, chairman
of the US Federal Reserve; Bill Rhodes, head of rescheduling at Citibank.
The key to a deadlock
There were also smaller heroes, who started to disabuse the banks about the street value of their
emerging-market loans: Marty Schubert at Eurinam and Victor Segal at Singer & Friedlander were
among the first to buy and sell, or broker, these impaired loans at discounted prices. It wasn't long
before discounted debt was being quoted on Reuters screens and traded by banks and even investors. It
turned out to be the key to a deadlock between governments, banks and the major borrowers in default.
In 1985 US treasury secretary James Baker announced the Baker Plan, promising new money to
countries burdened with debt, in an attempt to keep banks in the game. It failed. European banks had
written down much of their emerging market exposure but the US banks had not. They were
maintaining the accounting myth that it was worth 100 cents on the dollar, while doing deals between
themselves at 50 cents.
The Arabs and oil p8
Deutsche Bank, Midland, Société Générale, and Société Générale de Banque, with the ultimate goal of
establishing a pan-European global bank. It had six separate banking operations including London
(EBC), New York (European American), European Asian and European Arab. Yassukovich who was
managing director of EBC, remembers setting it up in London in 1974 amid strikes and power cuts,
often working by the light of a paraffin lamp. He acknowledges that consortium banks "had their
moment. They allowed member banks to experiment and were a way of sharing risk. But it was always
clear to me that they didn't have a long-term future."
Says de Gelsey: "It was right for the banks to club together. Now mergers are doing the same thing. In
time we found that our shareholders were competing with us." Orion was sold to Royal Bank of
Canada. EBC was bought by ABN Amro.
The end of the beginning
London's Big Bang in 1986 spelled the end for a number of London-based consortia,
Yassukovich says. Libra Bank, which had made its mark in emerging-market debt trading, was shut
down and its traders bought by Deutsche Morgan Grenfell. Of the Arab consortium banks the two
biggest, which started with governments as shareholders, Arab Banking Corporation (ABC) and Gulf
International Bank (GIB) are now pale shadows of what they were in the 1980s. UBAF has shrunk to a
small Paris operation. Banque Arabe et Internationale d'Investissement (BAII), which was embroiled in
the Bank of Credit & Commerce International (BCCI) collapse in 1991, is now just a Paris fax number.
United Bank of Kuwait, set up in London by three Kuwaiti banks in 1966, is perhaps the only
consortium bank that continues to thrive.
The mushrooming of Arab banks was a response to the oil revenues that poured into the Arab
world after the 1973 oil crisis. ABC and GIB became big recyclers of petrodollars, through
syndicated lending to the developing world. The mid-1970s to the early 1980s was the era of the
syndicated loan: to Mexico, Brazil, Italy, Nigeria, Turkey.
Saudi Arabian Monetary Agency had "three wise men" as advisers: John Meyer, Alfred Schäfer, and
Robert Fleming, respectively the chairmen of JP Morgan, UBS and Robert Fleming, who urged it to get
some investment bankers to manage its rapidly rising cash mountain. It hired a team of eight people
from White Weld and Baring Brothers. Among them was David Mulford, then at White Weld.
Oil, inflation, default
"Everyone thought the oil crisis and the petrodollars were a world-destabilizing event," says Mulford.
So it was fortunate that the Saudis undertook to invest their funds smoothly and unobtrusively around
the world. "We created a huge portfolio of private placements," says Mulford. "Sama was the biggest
operator in the government bond markets, and the biggest holder of US government bonds. It had a
portfolio of private placements and equity in double-A and triple-A corporate names. We negotiated
with governments to smooth out tax barriers and the like, on the understanding that we wouldn't disrupt
the local market." The Saudis were buyers and holders of government and agency bonds - they never
traded in and out.
After the second oil price shock at the end of 1979, Saudi revenues were around $10 billion every 30
days. "Every business day, $50 million was added to the short-term portfolio," says Mulford. Because
of the Friday holiday in Saudi Arabia, the team of eight people, managing around $135 billion, could
operate on only 16 business days a month. "As the deregulation process spread, we were creating
the forerunner of the global market," he concludes.
Saudi Arabia further endeared itself to the west by placing a SR10 billion enlarged access
resource fund with the IMF. As a reward it became a permanent member of the IMF board of
governors.
establishing a pan-European global bank. It had six separate banking operations including London
(EBC), New York (European American), European Asian and European Arab. Yassukovich who was
managing director of EBC, remembers setting it up in London in 1974 amid strikes and power cuts,
often working by the light of a paraffin lamp. He acknowledges that consortium banks "had their
moment. They allowed member banks to experiment and were a way of sharing risk. But it was always
clear to me that they didn't have a long-term future."
Says de Gelsey: "It was right for the banks to club together. Now mergers are doing the same thing. In
time we found that our shareholders were competing with us." Orion was sold to Royal Bank of
Canada. EBC was bought by ABN Amro.
The end of the beginning
London's Big Bang in 1986 spelled the end for a number of London-based consortia,
Yassukovich says. Libra Bank, which had made its mark in emerging-market debt trading, was shut
down and its traders bought by Deutsche Morgan Grenfell. Of the Arab consortium banks the two
biggest, which started with governments as shareholders, Arab Banking Corporation (ABC) and Gulf
International Bank (GIB) are now pale shadows of what they were in the 1980s. UBAF has shrunk to a
small Paris operation. Banque Arabe et Internationale d'Investissement (BAII), which was embroiled in
the Bank of Credit & Commerce International (BCCI) collapse in 1991, is now just a Paris fax number.
United Bank of Kuwait, set up in London by three Kuwaiti banks in 1966, is perhaps the only
consortium bank that continues to thrive.
The mushrooming of Arab banks was a response to the oil revenues that poured into the Arab
world after the 1973 oil crisis. ABC and GIB became big recyclers of petrodollars, through
syndicated lending to the developing world. The mid-1970s to the early 1980s was the era of the
syndicated loan: to Mexico, Brazil, Italy, Nigeria, Turkey.
Saudi Arabian Monetary Agency had "three wise men" as advisers: John Meyer, Alfred Schäfer, and
Robert Fleming, respectively the chairmen of JP Morgan, UBS and Robert Fleming, who urged it to get
some investment bankers to manage its rapidly rising cash mountain. It hired a team of eight people
from White Weld and Baring Brothers. Among them was David Mulford, then at White Weld.
Oil, inflation, default
"Everyone thought the oil crisis and the petrodollars were a world-destabilizing event," says Mulford.
So it was fortunate that the Saudis undertook to invest their funds smoothly and unobtrusively around
the world. "We created a huge portfolio of private placements," says Mulford. "Sama was the biggest
operator in the government bond markets, and the biggest holder of US government bonds. It had a
portfolio of private placements and equity in double-A and triple-A corporate names. We negotiated
with governments to smooth out tax barriers and the like, on the understanding that we wouldn't disrupt
the local market." The Saudis were buyers and holders of government and agency bonds - they never
traded in and out.
After the second oil price shock at the end of 1979, Saudi revenues were around $10 billion every 30
days. "Every business day, $50 million was added to the short-term portfolio," says Mulford. Because
of the Friday holiday in Saudi Arabia, the team of eight people, managing around $135 billion, could
operate on only 16 business days a month. "As the deregulation process spread, we were creating
the forerunner of the global market," he concludes.
Saudi Arabia further endeared itself to the west by placing a SR10 billion enlarged access
resource fund with the IMF. As a reward it became a permanent member of the IMF board of
governors.
London Markets p7
In its favour, London had a syndicated acceptance credit market, so its bankers understood the
concept of syndication, whereas continental bankers didn't. "If the market hadn't come to London it
wouldn't have grown so fast," Craven admits.
It moved from its early base in Switzerland because the Swiss authorities refused to exempt Eurobond
trading from stamp tax. The UK authorities were more enlightened, recalls Yassukovich. When he
came to London to set up White Weld & Co Ltd in 1969, his tax advisers discovered a 19th-century
exemption (designed to facilitate intra-British-empire trade) which levied tax on office overheads rather
than trading turnover. Walter Koller and his team "rented houses in Wimbledon and got trading", says
Yassukovich. "We started a stampede to London, although Merrill stayed in Geneva."
Swiss banking goes Anglo-Saxon
Rainer Gut, chairman of Credit Suisse, was unusual. He hadn't gone to the right Swiss school or
university or done time as a reserve officer, but he trained with Lazard in New York and married an
American. He established himself at Credit Suisse having cleaned up the 1977 funds mismanagement
scandal at its Chiasso branch - whose chief manager, Ernesto Kuhrmeier, was arrested. Then Gut
created and presided over perhaps the only successful marriage of a commercial bank with an
investment bank - first Credit Suisse White Weld, then Credit Suisse First Boston. "Gut probably
brought the Anglo-Saxon culture to Swiss banking," says Patrick Odier, a partner at Lombard Odier in
Geneva. "Gut was clearly instrumental in developing [the investment banking business]," recalls
Rudloff. "He always gave us the freedom, favoured us over the commercial bank. His strength is
instinct not strategy. But it was always of enormous benefit that we could call Gut and get him to agree
[to a commitment]."
There are those who bear him a grudge, for the way he pushed through the merger with First Boston in
1978. Gut has always allowed tension and animosity to thrive. And First Boston's charge into leveraged
lending - notably for Ohio Mattress in 1988 - cost Credit Suisse billions. But the history of the group is
like the history of the Euromarket itself, moving from the early cult of personality, to a quest for size
and volume, now restructured into an integrated risk-management machine.
Orion was another hybrid entity that somehow rode high on the spirit of the time, until its shareholders
got jealous and sold it. Orion was a consortium bank set up in 1971 by NatWest, Chase, WestLB,
Royal Bank of Canada (20% each), and Credito Italiano and Mitsubishi Trust (10% each), to spread the
risk and cost of entry into the Eurobond market. Run by the aristocratic and dilettante David Montagu
(later Lord Swaythling), it made its mark through flexibility of decision-making and the energy of its
officers. Without its own market and its own source of dollar deposits it ventured opportunistically into
syndicating Canadian and Aussie dollar deals. Among its alumni are Hans de Gier, until recently
chairman of Warburg Dillon Read; Andrew Large, former board member of Swiss Bank Corp and
chairman of the UK Securities & Investments Board; William de Gelsey, renowned Euromarket
mandate-seeker, dubbed Wandervogel [globe-trotter], now adviser to Bank Austria, and to Hungary's
prime minister.
De Gelsey scored an early victory while still at Hill Samuel, side-stepping the restrictive Swiss big-
bank bond syndicate and bringing a Sfr12 million 22-year issue for the Oesterreichische Kontrollbank
(OKB) in 1970. His syndicate included Bank von Ernst (which Hill Samuel owned), Handelsbank of
Zurich, Roche & Cie of Basle, Banque Cantonale Vaudoise, Banque Privée of Geneva and Banca del
Gottardo.
Orion flourished in the heyday of consortium banking. At that time there were more than 40, most of
them formed by a club of western banks to enter a little-known market, or by Arab shareholders to
bring in western expertise. Ebic (European Banks International Company), the most extensive, was
built up in the late 1960s and early 1970s by Amro Bank, Banca Commerciale Italiana, Creditanstalt,
concept of syndication, whereas continental bankers didn't. "If the market hadn't come to London it
wouldn't have grown so fast," Craven admits.
It moved from its early base in Switzerland because the Swiss authorities refused to exempt Eurobond
trading from stamp tax. The UK authorities were more enlightened, recalls Yassukovich. When he
came to London to set up White Weld & Co Ltd in 1969, his tax advisers discovered a 19th-century
exemption (designed to facilitate intra-British-empire trade) which levied tax on office overheads rather
than trading turnover. Walter Koller and his team "rented houses in Wimbledon and got trading", says
Yassukovich. "We started a stampede to London, although Merrill stayed in Geneva."
Swiss banking goes Anglo-Saxon
Rainer Gut, chairman of Credit Suisse, was unusual. He hadn't gone to the right Swiss school or
university or done time as a reserve officer, but he trained with Lazard in New York and married an
American. He established himself at Credit Suisse having cleaned up the 1977 funds mismanagement
scandal at its Chiasso branch - whose chief manager, Ernesto Kuhrmeier, was arrested. Then Gut
created and presided over perhaps the only successful marriage of a commercial bank with an
investment bank - first Credit Suisse White Weld, then Credit Suisse First Boston. "Gut probably
brought the Anglo-Saxon culture to Swiss banking," says Patrick Odier, a partner at Lombard Odier in
Geneva. "Gut was clearly instrumental in developing [the investment banking business]," recalls
Rudloff. "He always gave us the freedom, favoured us over the commercial bank. His strength is
instinct not strategy. But it was always of enormous benefit that we could call Gut and get him to agree
[to a commitment]."
There are those who bear him a grudge, for the way he pushed through the merger with First Boston in
1978. Gut has always allowed tension and animosity to thrive. And First Boston's charge into leveraged
lending - notably for Ohio Mattress in 1988 - cost Credit Suisse billions. But the history of the group is
like the history of the Euromarket itself, moving from the early cult of personality, to a quest for size
and volume, now restructured into an integrated risk-management machine.
Orion was another hybrid entity that somehow rode high on the spirit of the time, until its shareholders
got jealous and sold it. Orion was a consortium bank set up in 1971 by NatWest, Chase, WestLB,
Royal Bank of Canada (20% each), and Credito Italiano and Mitsubishi Trust (10% each), to spread the
risk and cost of entry into the Eurobond market. Run by the aristocratic and dilettante David Montagu
(later Lord Swaythling), it made its mark through flexibility of decision-making and the energy of its
officers. Without its own market and its own source of dollar deposits it ventured opportunistically into
syndicating Canadian and Aussie dollar deals. Among its alumni are Hans de Gier, until recently
chairman of Warburg Dillon Read; Andrew Large, former board member of Swiss Bank Corp and
chairman of the UK Securities & Investments Board; William de Gelsey, renowned Euromarket
mandate-seeker, dubbed Wandervogel [globe-trotter], now adviser to Bank Austria, and to Hungary's
prime minister.
De Gelsey scored an early victory while still at Hill Samuel, side-stepping the restrictive Swiss big-
bank bond syndicate and bringing a Sfr12 million 22-year issue for the Oesterreichische Kontrollbank
(OKB) in 1970. His syndicate included Bank von Ernst (which Hill Samuel owned), Handelsbank of
Zurich, Roche & Cie of Basle, Banque Cantonale Vaudoise, Banque Privée of Geneva and Banca del
Gottardo.
Orion flourished in the heyday of consortium banking. At that time there were more than 40, most of
them formed by a club of western banks to enter a little-known market, or by Arab shareholders to
bring in western expertise. Ebic (European Banks International Company), the most extensive, was
built up in the late 1960s and early 1970s by Amro Bank, Banca Commerciale Italiana, Creditanstalt,
Bretton woods 3 p6
Mobiliare Italiano (IMI), which was the blueprint for all subsequent Euroloans: "We used the IMI loan
to adjust for all the weaknesses of the Iranian loan," says Zombanakis.
He was in competition with the Eurobond players for the same sovereign business. Evan Galbraith, a
director at Bankers Trust International in London (later US ambassador to France), had allegedly
invented the floating-rate note while watching a duck bobbing in his bath. BT and SG Warburg were
chasing a mandate in Italy, a $500 million FRN for Enel. Warburg's Eric Roll was already in Rome
when Zombanakis flew in and persuaded the Bank of Italy that IMI (Istituto Mobiliare Italiano) should
do a $200 million Euroloan instead. "Compared with $9 million in fees for the FRN they paid us half a
percent," says Zombanakis. "The new market for Euroloans then burst into life."
But the Eurobond market was already flourishing. It resided mostly in two founding firms:
White Weld and SG Warburg. The acknowledged visionary and cerebral genius was Robert Genillard,
White Weld's senior partner, who forged an alliance with Credit Suisse, which, through various
permutations, survives as Credit Suisse First Boston (CSFB). The Credit Suisse White Weld (CSWW)
stable trained some of the legendary names in the Eurobond market: Michael Von Clemm, alleged
inventor of the floating-rate certificate of deposit, larger-than-life chaser of mandates from Seattle to
Beijing, "a thinker, a renaissance man", says one admirer; Stanislas Yassukovich, who cemented the
Eurobond market's relationship with London; David Mulford, now international chairman of CSFB,
who also advised the Saudi Arabian Monetary Agency (Sama), served as under-secretary for
international finance at the US treasury presiding over the Brady Plan, and led some of the major
privatizations in the emerging markets; John Craven, former Warburg protégé, adviser to many
institutions during London's Big Bang, stabilizer of Morgan Grenfell after its Guinness scandal, and
finally the first non-German member of Deutsche Bank's executive board. Walter Koller was White
Weld's celebrated Eurobond trader, one of the founders of the secondary market, along with Stanley
Ross, formerly with Strauss Turnbull, then with Kidder Peabody. He founded his own bond trading
firm, Ross & Partners in April 1978, which goaded the big players into greater transparency by quoting
"grey-market", when-issued bond prices.
Warburg's founder Siegmund Warburg had spotted the opportunity to create a new kind of merchant
bank in London, "professional, hard-working, no country houses", recalls Craven. In fact, Gert
Whitman was the true Eurobond genius at Warburg, says Craven: "He had the Fingerspitzengefühl
[sixth sense] and knew which bond issue would get away."
'London was pretty miserable'
Only a handful of other firms saw the potential of this first truly international market and began
syndicating and trading. They included NM Rothschild, Kuhn Loeb, Kredietbank (Luxembourg),
Banca Commerciale Italiana, Skandinaviska Enskilda Banken, Paribas, Hambros and Strauss Turnbull,
then later Swiss Bank Corporation, Orion, Deutsche Bank and Manufacturers Hanover.
The centre of this business wasn't naturally London. Genillard at White Weld favoured Paris or
Geneva. Siegmund Warburg wanted at one time to create an SGW International in Luxembourg.
"London was a pretty miserable place to be," recalls Craven, "beset with post-war gloom, exchange
controls, and the narrow, parochial attitude of the City."
The London stock exchange wouldn't waive the rule that gave 15% of any new issue to the London
jobbers, who had no placing power. "So we listed in Luxembourg instead," says Craven, "hence the
creation of Cedel and Euroclear."
He continues: "We couldn't place bonds in the domestic market, and the government's credit
rating was so poor we couldn't do a bond issue for them or any UK company. So it's a miracle we
got the market going in London."
to adjust for all the weaknesses of the Iranian loan," says Zombanakis.
He was in competition with the Eurobond players for the same sovereign business. Evan Galbraith, a
director at Bankers Trust International in London (later US ambassador to France), had allegedly
invented the floating-rate note while watching a duck bobbing in his bath. BT and SG Warburg were
chasing a mandate in Italy, a $500 million FRN for Enel. Warburg's Eric Roll was already in Rome
when Zombanakis flew in and persuaded the Bank of Italy that IMI (Istituto Mobiliare Italiano) should
do a $200 million Euroloan instead. "Compared with $9 million in fees for the FRN they paid us half a
percent," says Zombanakis. "The new market for Euroloans then burst into life."
But the Eurobond market was already flourishing. It resided mostly in two founding firms:
White Weld and SG Warburg. The acknowledged visionary and cerebral genius was Robert Genillard,
White Weld's senior partner, who forged an alliance with Credit Suisse, which, through various
permutations, survives as Credit Suisse First Boston (CSFB). The Credit Suisse White Weld (CSWW)
stable trained some of the legendary names in the Eurobond market: Michael Von Clemm, alleged
inventor of the floating-rate certificate of deposit, larger-than-life chaser of mandates from Seattle to
Beijing, "a thinker, a renaissance man", says one admirer; Stanislas Yassukovich, who cemented the
Eurobond market's relationship with London; David Mulford, now international chairman of CSFB,
who also advised the Saudi Arabian Monetary Agency (Sama), served as under-secretary for
international finance at the US treasury presiding over the Brady Plan, and led some of the major
privatizations in the emerging markets; John Craven, former Warburg protégé, adviser to many
institutions during London's Big Bang, stabilizer of Morgan Grenfell after its Guinness scandal, and
finally the first non-German member of Deutsche Bank's executive board. Walter Koller was White
Weld's celebrated Eurobond trader, one of the founders of the secondary market, along with Stanley
Ross, formerly with Strauss Turnbull, then with Kidder Peabody. He founded his own bond trading
firm, Ross & Partners in April 1978, which goaded the big players into greater transparency by quoting
"grey-market", when-issued bond prices.
Warburg's founder Siegmund Warburg had spotted the opportunity to create a new kind of merchant
bank in London, "professional, hard-working, no country houses", recalls Craven. In fact, Gert
Whitman was the true Eurobond genius at Warburg, says Craven: "He had the Fingerspitzengefühl
[sixth sense] and knew which bond issue would get away."
'London was pretty miserable'
Only a handful of other firms saw the potential of this first truly international market and began
syndicating and trading. They included NM Rothschild, Kuhn Loeb, Kredietbank (Luxembourg),
Banca Commerciale Italiana, Skandinaviska Enskilda Banken, Paribas, Hambros and Strauss Turnbull,
then later Swiss Bank Corporation, Orion, Deutsche Bank and Manufacturers Hanover.
The centre of this business wasn't naturally London. Genillard at White Weld favoured Paris or
Geneva. Siegmund Warburg wanted at one time to create an SGW International in Luxembourg.
"London was a pretty miserable place to be," recalls Craven, "beset with post-war gloom, exchange
controls, and the narrow, parochial attitude of the City."
The London stock exchange wouldn't waive the rule that gave 15% of any new issue to the London
jobbers, who had no placing power. "So we listed in Luxembourg instead," says Craven, "hence the
creation of Cedel and Euroclear."
He continues: "We couldn't place bonds in the domestic market, and the government's credit
rating was so poor we couldn't do a bond issue for them or any UK company. So it's a miracle we
got the market going in London."
Bretton woods 2 p5
and gold as an int'l. reserve currency to finance global trade.
Modern exchange-rate volatility began when the US dollar came off the gold standard in August
1971. The foreign exchange market's biggest shock came three years later when Bankhaus
Herstatt failed to settle the New York legs of its dollar foreign-exchange deals. Banks in other
time zones, left with incomplete deals, or just fearing that they would arise, grabbed what they
could, causing a general panic. A handful of banks ended up losing money. It decimated the
medium-size German banks.
1971 Apr 1, The United Kingdom lifted all restrictions on gold ownership.
1971 Aug 15, Pres. Nixon suspended conversion of dollars to gold and imposed a 90-day price, wage
and rents freeze and 10% import charge. He also cut various taxes and expenditures. This marked the
end of the gold standard and fixed exchange rates.
1972 The Chicago futures market first began trading financial derivatives.
On 10 July 1967, the dollar replaced the New Zealand pound at a rate of 2 dollars = 1 pound when the
country decimalised its currency. The NZ$1 was initially pegged to the US dollar at a rate of US$1.39
= NZ$1. This rate changed on November 21 of the same year to US$1.12 = NZ$1 after the devaluation
of the British pound (see Bretton Woods system), although New Zealand devalued more than the U.K.
In 1971, the U.S. devalued its dollar relative to gold, leading New Zealand to peg its dollar at a value of
US$1.216 with a 4.5% fluctuation range on 23 December (keeping the same gold value). From 9 July
1973 to 4 March 1985 the dollar's value was determined from a trade-weighted basket of currencies.
The New Zealand dollar was floated on 4 March 1985 at 0.4444 USD, and since then, the
dollar's value has been determined by the financial markets, and has been in the range of about 0.39–
0.82 United States dollars. The dollar's post-float minimum average daily value was 0.3922 U.S.
dollars on 22 November 2000, and it set a post-float maximum on 27 February 2008, reaching 0.8213
USD. Much of this medium-term variation in the exchange rate has been attributed to differences in
interest rates.[citation needed] The New Zealand dollar's value is often strongly affected by
currency trading, and is among the 12 most traded currencies.
So now we know how the economic conditions were changing lets look at the the markets over the
last 30 years ....
According to Hans-Joerg Rudloff, now chairman of Barclays Capital, the years 1966 to 1969 "saw a re-
opening of the international financial markets after 40 years". They had been closed effectively since
1929.
Veterans remember those early days of Eurobonds and Euroloans as an era of excitement, vision and
idiosyncratic behaviour. Rudloff wasn't the first into the business. He was a humble equity salesman at
Kidder Peabody when the market started. But at Credit Suisse First Boston in the early 1980s, he
became the archetypal Eurobond syndicate boss: arrogant, powerful, ruthless, hard-living and
courageous.
There was another less glamorous side to the market, the Euroloan, responsible for recycling billions of
oil dollars to developing countries in the late 1970s, and perhaps later contributing to their economic
downfall.
Minos Zombanakis, then at Manufacturers Hanover, recalls his first sovereign floating-rate Euroloan,
$70 million for the shahdom of Iran in 1969. That was followed by a $200 million loan for Istituto
Modern exchange-rate volatility began when the US dollar came off the gold standard in August
1971. The foreign exchange market's biggest shock came three years later when Bankhaus
Herstatt failed to settle the New York legs of its dollar foreign-exchange deals. Banks in other
time zones, left with incomplete deals, or just fearing that they would arise, grabbed what they
could, causing a general panic. A handful of banks ended up losing money. It decimated the
medium-size German banks.
1971 Apr 1, The United Kingdom lifted all restrictions on gold ownership.
1971 Aug 15, Pres. Nixon suspended conversion of dollars to gold and imposed a 90-day price, wage
and rents freeze and 10% import charge. He also cut various taxes and expenditures. This marked the
end of the gold standard and fixed exchange rates.
1972 The Chicago futures market first began trading financial derivatives.
On 10 July 1967, the dollar replaced the New Zealand pound at a rate of 2 dollars = 1 pound when the
country decimalised its currency. The NZ$1 was initially pegged to the US dollar at a rate of US$1.39
= NZ$1. This rate changed on November 21 of the same year to US$1.12 = NZ$1 after the devaluation
of the British pound (see Bretton Woods system), although New Zealand devalued more than the U.K.
In 1971, the U.S. devalued its dollar relative to gold, leading New Zealand to peg its dollar at a value of
US$1.216 with a 4.5% fluctuation range on 23 December (keeping the same gold value). From 9 July
1973 to 4 March 1985 the dollar's value was determined from a trade-weighted basket of currencies.
The New Zealand dollar was floated on 4 March 1985 at 0.4444 USD, and since then, the
dollar's value has been determined by the financial markets, and has been in the range of about 0.39–
0.82 United States dollars. The dollar's post-float minimum average daily value was 0.3922 U.S.
dollars on 22 November 2000, and it set a post-float maximum on 27 February 2008, reaching 0.8213
USD. Much of this medium-term variation in the exchange rate has been attributed to differences in
interest rates.[citation needed] The New Zealand dollar's value is often strongly affected by
currency trading, and is among the 12 most traded currencies.
So now we know how the economic conditions were changing lets look at the the markets over the
last 30 years ....
According to Hans-Joerg Rudloff, now chairman of Barclays Capital, the years 1966 to 1969 "saw a re-
opening of the international financial markets after 40 years". They had been closed effectively since
1929.
Veterans remember those early days of Eurobonds and Euroloans as an era of excitement, vision and
idiosyncratic behaviour. Rudloff wasn't the first into the business. He was a humble equity salesman at
Kidder Peabody when the market started. But at Credit Suisse First Boston in the early 1980s, he
became the archetypal Eurobond syndicate boss: arrogant, powerful, ruthless, hard-living and
courageous.
There was another less glamorous side to the market, the Euroloan, responsible for recycling billions of
oil dollars to developing countries in the late 1970s, and perhaps later contributing to their economic
downfall.
Minos Zombanakis, then at Manufacturers Hanover, recalls his first sovereign floating-rate Euroloan,
$70 million for the shahdom of Iran in 1969. That was followed by a $200 million loan for Istituto
Bretton woods p4
Bretton woods
By the early 1960s, the U.S. dollar's fixed value against gold, under the Bretton Woods system of fixed
exchange rates, was seen as overvalued. A sizable increase in domestic spending on President Lyndon
Johnson's Great Society programs and a rise in military spending caused by the Vietnam War gradually
worsened the over valuation of the dollar.
End of Bretton Woods system
The system dissolved between 1968 and 1973. In August 1971, U.S. President Richard Nixon
announced the "temporary" suspension of the dollar's convertibility into gold. While the dollar had
struggled throughout most of the 1960s within the parity established at Bretton Woods, this crisis
marked the breakdown of the system. An attempt to revive the fixed exchange rates failed, and by
March 1973 the major currencies began to float against each other.
Since the collapse of the Bretton Woods system, IMF members have been free to choose any form of
exchange arrangement they wish (except pegging their currency to gold): allowing the currency to float
freely, pegging it to another currency or a basket of currencies, adopting the currency of another
country, participating in a currency bloc, or forming part of a monetary union.
Oil shocks
Many feared that the collapse of the Bretton Woods system would bring the period of rapid growth to
an end. In fact, the transition to floating exchange rates was relatively smooth, and it was certainly
timely: flexible exchange rates made it easier for economies to adjust to more expensive oil, when the
price suddenly started going up in October 1973. Floating rates have facilitated adjustments to external
shocks ever since.
The IMF responded to the challenges created by the oil price shocks of the 1970s by adapting its
lending instruments. To help oil importers deal with anticipated current account deficits and inflation in
the face of higher oil prices, it set up the first of two oil facilities.
Lets slip back a few years ....
1967 The US introduced the concept of the SDR (special drawing right) as an alternative to the dollar
By the early 1960s, the U.S. dollar's fixed value against gold, under the Bretton Woods system of fixed
exchange rates, was seen as overvalued. A sizable increase in domestic spending on President Lyndon
Johnson's Great Society programs and a rise in military spending caused by the Vietnam War gradually
worsened the over valuation of the dollar.
End of Bretton Woods system
The system dissolved between 1968 and 1973. In August 1971, U.S. President Richard Nixon
announced the "temporary" suspension of the dollar's convertibility into gold. While the dollar had
struggled throughout most of the 1960s within the parity established at Bretton Woods, this crisis
marked the breakdown of the system. An attempt to revive the fixed exchange rates failed, and by
March 1973 the major currencies began to float against each other.
Since the collapse of the Bretton Woods system, IMF members have been free to choose any form of
exchange arrangement they wish (except pegging their currency to gold): allowing the currency to float
freely, pegging it to another currency or a basket of currencies, adopting the currency of another
country, participating in a currency bloc, or forming part of a monetary union.
Oil shocks
Many feared that the collapse of the Bretton Woods system would bring the period of rapid growth to
an end. In fact, the transition to floating exchange rates was relatively smooth, and it was certainly
timely: flexible exchange rates made it easier for economies to adjust to more expensive oil, when the
price suddenly started going up in October 1973. Floating rates have facilitated adjustments to external
shocks ever since.
The IMF responded to the challenges created by the oil price shocks of the 1970s by adapting its
lending instruments. To help oil importers deal with anticipated current account deficits and inflation in
the face of higher oil prices, it set up the first of two oil facilities.
Lets slip back a few years ....
1967 The US introduced the concept of the SDR (special drawing right) as an alternative to the dollar
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