The Leader of the Opposition, Basdeo Panday, recently laid a motion in our Parliament seeking for Hindu Credit Union (HCU) depositors to be granted a "bailout" of the kind given to those who had invested with the failed CL Financial Group. On October 30, the Minister of Finance made a major statement to the Parliament, seeking to defend the Government's actions in the cases of these two failed financial institutions. In terms of race, politics and finance that statement by the minister deserves our most sober consideration.
Before going further, I need to make two things clear.
Firstly, I am not intervening on behalf of Harry Harnarine or the HCU. I am not a supporter of that cause. Not at all. Secondly, I do not support the bailout of either group: CL Financial or HCU. The idea that state resources should be deployed to assist investors who have lost money is a dangerous one. As a matter of principle, the concept of moral hazard has real weight in economic behaviour. The idea that investors can be rescued without paying the consequences of their choices is inimical to proper development. As I have stated in my previous articles on this bailout, the record of the Government–in terms of separating the interests of depositors, policyholders and shareholders–is turbid.
The minister's rationale was set out in two limbs. The first being that the HCU dealings were not straightforward. Indeed, one newspaper carried the headline: Devious HCU. And, secondly, that the CL Financial dealings were marked by "tangible co-operation." This bailout is an extremely serious act being carried out by the Government in breach of the fundamental principle and we deserve nothing but the truth. There are deep contradictions on every single point cited by the minister to support the actions taken.
Here is what the minister is reported to have said, together with the contradictions:
1. Ample collateral: The minister is reported to have said that HCU failed to offer ample collateral to the State. The Central Bank Governor is reported to have said, on April 7, that all of CL Financial's assets were otherwise committed. This was reported at: http://guardian.co.tt/business/business/2009/04/08/govt-left-empty-handed-cl-financial-bailout.
2. The Ernst & Young report. The minister is also quoted as saying that: "The auditors' assessment was that the Hindu Credit Union was facing not a liquidity problem, but a solvency problem and all its assets were overestimated in value and encumbered." As a rationale for the Government's actions, that is completely at odds with the April 7 statement of the Governor. In fact, we were told that the CL Financial Group and various of its parts were being examined by Ernst & Young and Bob Lindquist, the renowned forensic accountants. To date, no results of those accountants' work has been released. We are being told that the CL Financial chiefs showed "tangible co-operation" in their dealings, so where are the audits?
Why has the 2008 audit of the CL Financial by PriceWaterhouseCoopers not been published?
3."What is the Government to do? You dealing with...the major players, and they are not levelling with you." That was the minister's statement about HCU, made in apparent exasperation. As I wrote in my column, Who is Who and What is What, published here on April 30: "At the beginning of this process we were led to believe that CL Financial was being pro-active and cooperative in their dealings with the State.?Indeed, the governor even made this point directly in his prepared remarks at the January 30 press conference. I would like to acknowledge the high level of co-operation that we have received from Mr Duprey." Since then, CLF has now been exposed as paying dividends after requesting the State bailout, challenging the injunction obtained by the State over their assets with a powerful legal team and, to top it all, pledging the same assets twice. ?The Governor spoke on April 23: "If you ask me whether CL Financial did everything that was honourable and beyond reproach, the answer is no. The answer is no!"? Obviously, someone is not levelling with us.
So the Government bails out policyholders and depositors of the CL Financial Group. That is widely welcomed, except for a few objectors, like myself. It seems clear to me that the interest of the CL Financial shareholders have been promoted in preference to those of the taxpayer. I am subject to correction, but if that is so, it would be a monumental misallocation of public funds and a huge act corruption. The terms of the bailout are now being deliberately concealed from public view, although it is at our expense and supposedly being carried out for the benefit of the public. That secrecy is toxic to notions of transparency, accountability and modernity. I will return to that secrecy issue.
Suffice to say that the terms of the bailout, the subsequent revelations and the concealment of the second memorandum of understanding have combined with the minister's contradictory statement to yield a very unhealthy series of precedents. The unspoken question at this moment is: who is next? Last week's BG View editorial highlighted some pertinent concerns as to the health of private pension plans and the strength of the regulatory process. No one knows if CL Financial is just the first in a chain reaction or simply a "one-off." The burning question is: if there is another collapse of a large investment house, will they also be bailed-out? And, if yes: on what terms?
n Afra Raymond is a chartered surveyor.
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