Joe Hendren

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Thursday, January 24, 2008

Greedy debt pushers cause economic damage

In my last post I highlighted the decision of the Advertising Standards Authority to uphold a complaint about an advertisement from Bond and Bond that stated "NZ has the 3rd highest level of personal debt, help us get to No. 1". The ASA found the advertisement to be socially irresponsible.

While its completely out of the purview of the ASA [tongue in cheek], I believe the actions of the large retailers in encouraging their customers into high levels of debt is also economically irresponsible. And that goes for the Australian owned banks pushing residential mortgages, and the finance companies who deal in high interest loans.

New Zealand has a long standing current account deficit, a problem only made worse by the liberalisation of consumer and other forms of credit by Roger Douglas in the first term of the Forth Labour Government. That money for the TV has to come from somewhere, and it can usually be traced to overseas sources, thereby placing greater pressure on NZ to source foreign investment (eg asset sales) to balance the books. While souring large mortgages for property investment deals in more significant amounts, the growth of consumer credit over the past 22 or so years has also got to be a factor. Since Douglas, levels of private debt have ballooned.

In some ways debt is a little like alcohol. It can function as a social lubricant as consumption is kept in moderation. In the same way bars are forbidden to sell alcohol to intoxicated persons, I believe it would be socially responsible for the government to place greater restrictions on consumer finance.
  • The loan sharks need to be targeted and run out of town like the illegal bootleggers.
  • There needs to be tough rules around high interest car loans, particularly where the level of debt is going to grow to be significantly higher than the cost of the car (perhaps this could involve restrictions on the assets that can be repossessed).
  • I also support the recommendations of the Parasites on Poverty campaign, such as setting a maximum finance rate for all borrowing (related the rate of inflation) and ensuring all loan forms have to be in "plain English" in order to be enforceable.
One of causes of the current sub-prime mortgage crisis in the United States is the high interest rates charged on these mortgages. So in some ways the greed of American financial institutions has made them the authors of their own difficulties. In New Zealand the trouble with Provincial Finance began with the high number of high risk vehicle loans held by the company. In this case, why is there so much sympathy and focus on the investors who have lost money, and so little sympathy for the people who were struggling to pay off these loans in the first place?

I find it surprising effect of consumer credit and the use of credit cards is hardly ever mentioned in debates over monetary policy and the old bug bear of 'restraining inflation'. While greater restrictions on the use of consumer credit may in itself only have a small economic impact, there is potential for this to contribute to a change in consumer behaviour, meaning that people would be more likely to save if they wanted a big screen TV. An increase in overall savings rates would have a positive impact on the current account deficit.

In the wider scale, New Zealand's economic problems are not due to bad consumers who will not stop spending. Retailers who run advertising campaigns encouraging their customers into high levels of debt at usurious interest rates are contributing to the problem. However, the most fundamental problem is continuation of poor public policy which continues to leave the debt markets so unregulated.

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Socially irresponsible Bond and Bond

Very pleased to see Bond and Bond get told off by the Advertising Standards Authority for running a vile advertisement that stated "NZ has the 3rd highest level of personal debt, help us get to No. 1".

I can see how a retailer like Bond and Bond might be proud of this, as they have effectively lined their own pockets at the expense of their customers.

Well done to the Invercargill Budget Advisory Service. Here is what the free service told the Advertising Standards Authority (ASA):
"As... [an]....organization which constantly sees people with huge debts they have no way of paying and the ripple effects this has in people's lives we find the wording of this advert socially irresponsible and believe it breaches the Advertising Code of Ethics.”

The ASA upheld the complaint:
"The Complaints Board reiterated its longstanding requirement for advertisements containing messages concerning the financial security of consumers to adhere to at least a due sense of social responsibility, as financial well-being was a serious matter and was not to be taken lightly....[T]he majority of the Complaints Board was of the view that the advertisement, urging people to spend and increase their level of personal debt, was directly targeted at the consumer, and did not meet a due sense of social responsibility. Thereby the majority ruled that it was in breach of Basic Principle 4.

The full ASA decision is available here.

Come to think of it, Bond and Bond is a rather ironic name for a company who actively encourages the sale of debt.

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Thursday, January 17, 2008

Concerns about the Server in the Sky

The Herald reports that New Zealand is to be part of an FBI-led consortium that plans a global database of personal biometric information to "catch criminals and terrorists".

Biometric details and measurements, such as iris scans, palm and fingerprints would be swapped between countries, namely the US, the UK, Canada, Australia and New Zealand. As Iain Thompson points out, these five countries already co-operate in running Echelon, the global eavesdropping service that listens and records global telephone, radio and email communications. So while the public face may be in terms of police co-operation, its a fair bet the intelligence agencies will also be able to access this data. Perhaps the GCSB and the SIS see our participation as a way to gain greater access to US intelligence data in return.

While 'officials' in this country claim New Zealand is still considering whether to join the consortium, Police National Forensic Services Adviser Inspector John Walker said it was likely we would do so.

The FBI told the Guardian: "Server in the Sky is an FBI initiative designed to foster the advanced search and exchange of biometric information on a global scale. While it is currently in the concept and design stages, once complete it will provide a technical forum for member nations to submit biometric search requests to other nations. It will maintain a core holding of the world's 'worst of the worst' individuals. Any identifications of these people will be sent as a priority message to the requesting nation."
The FBI is proposing to establish three categories of suspects in the shared system: "internationally recognised terrorists and felons", those who are "major felons and suspected terrorists", and finally those who the subjects of terrorist investigations or criminals with international links. Tom Bush, assistant director at the FBI's criminal justice information service, has said he hopes to see a pilot project for the programme up and running by the middle of the year.

The proposal to share information about subjects of terrorist suspects is the most concerning. Suspects are not criminals, and should not be treated like criminals unless you wish to throw out the entire principle of 'innocent until proven guilty'. It is yet another example of governments using the excuse of 'anti-terrorism' to undermine core principles of the legal system for their own convenience.

Some elements of the police and security services in New Zealand have wished for a national biometric database of all citizens, whether they have committed a crime or not. This proposal has faced some resistance. But 'Server in the Sky' has the potential to implement this policy by default. The US now subjects all passengers, even those in transit to compulsory digital finger scans and photographs (which are also stored for an unknown period). Could the proposed consortium allow our police to import the finger scans of New Zealanders they are unable to legally obtain at home?

Even for those with criminal records the system could lead to some unjust outcomes. As a purely hypothetical example, supposing someone picked up a minor conviction in their teens. Years later they are wrongly implicated in a so called anti-terror operation. Due to their old record, their biometric information and criminal history could be spread about the world with little chance for correction.

I don't have so much of a problem with coppers sharing information about internationally active criminals convicted of serious crimes - but I suspect there are procedures in place for this already without the need for massive data sponge.

Interestingly, the US defence contractor linked with the proposed database, Northrop Grumman Corp, is the same company who created the IDENT1 database, an enhanced fingerprint identification system currently used by British police.

It is pleasing to see that the Server in the Sky proposal greeted with an element of scepticism in the UK media. This follows the embarrassing leak of detailed personal information on 40% of the British population late last year, and the case where an arrest for a terror offence by US investigators was based on a misidentified fingerprint match.

In the Guardian Nick Clegg is calling for the proposal to be treated with caution, as nothing, including biometrics, is fail safe. He highlights the importance of safeguards to ensure data collected under UK law remains subject to high data protection standards.
And once data is in the hands of the US authorities, there is no getting it back. We already send them massive amounts of information about air passengers, through a deal brokered by the European Commission, without any guarantee it will be properly safeguarded once it reaches the US. It would be foolhardy to start sharing further information without a simple guarantee: that data collected under UK law should continue to be protected even after it leaves Britain. We should share information when other countries can guarantee data protection standards that match, or exceed our own. Otherwise, who knows which one of us will be on the no-fly list next.

If the Government sign us up for Server in the Sky, at the very least they should be demanding this too. There also needs to be clear procedures to remove all traces of incorrect information. As the Zaoui case and the recent so called 'anti-terror raids' showed, both the SIS and our police are prone to bouts of Groupthink, where erroneous bullshit can only feed presumptions of guilt before innocence.

I hope we stay well clear of Server in the Sky. It can only fall down sometime.

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