Listener: 14 October, 1995.
Keywords: Business & Finance; Macroeconomics & Money;
Olly Newland’s Lost Property: The Crash of ’87 … and the aftershock is worth reading especially if you are thinking about investing in financial markets. It describes the founding and fall of his Landmark property corporation. The book cover describes the man as “one of the darlings of the New Zealand scene [in 1987] … wheeler dealer supreme. Banks almost (sic) queued at his door to lend him money; the media for his advice and comment. He had to field many requests to speak to investor groups.” Newland, would not be so immodest, but it is certainly true that there was a time when businessmen like him were flavour of the month.
But just how much were they were in charge: how much were they not entirely in command? Certainly Newland does not seem always to have been in control. He describes how in one deal “I couldn’t fully understand it, as finance is a weakness of mine”, and goes on to describe he thought his advisers Fay Richwhite were “geniuses”. A little he says later “Fay Richwhite were my heroes, the Bank of New Zealand could do no wrong, and the DFC was blessed without fail every morning and every evening.”
Recently an extraordinary parade of witnesses to the Equiticorp litigation and the Winebox inquiry have said they could not remember what had happened during crucial transactions. Most of us would have difficulty recalling detail of events eight and more years ago, but one assumes these men have prepared themselves thoroughly for the presentation of evidence, reviewing the papers available to them. Roger Douglas simply reported that he did not always read the papers he signed while Minister of Finance, relying on his officials’ advice. (I await the learned papers on this innovative approach to ministerial responsibility.) More often the cross-examined had memory failure. Chalkie, that delightful and shrewd financial market commentator in The Independent, remarked that at the Equiticorp trial of 1992 “every second witness seemed to be well on the way to Alzheimer’s [and] the wine-box of level of recall is even worse.”
Fortunately, Newland’s memory seems excellent. The book is a damned good read which captures the spirit of the time, providing insights into just how unstable the whole financial edifice was. There is a list of the major New Zealand property companies in October 1987, with a market capitalization of $5.8 billion, and their level two years later. Those that were left were now worth $1.2 billion, and two thirds of that was attributable to Robert Jones Investment Ltd, whose asset value has since collapsed like the others.
Ingenuously, Newland advises “never put your trust in banks” (including merchant banks and investments banks). At the very least one may wonder whether those who did put their trust in such institutions should carry a portion of the blame.
Moreover most investors are less active than entrepreneurial investors such as Newland. Those who invested in Landmark may well have been unaware of the central role of the bankers in the deals, or even which bankers were involved until they read the book. It would be fairer to say that they put their trust in Newland. Some would have formed a view from meeting him personally or reading his earlier books, but most often the view was intermediated by the media. Newland says “news media played a vital part.” (Understandably he had his own public relations agent, paid for personally, under his “control”.)
He goes on “the new breed of [financial] reporter fell into two types. There were those who believed and printed every word uttered by any business leader or budding fly-by-nighter no matter how bizarre, and those who interviewed their typewriter and wrote lies and half truths so as to advance themselves and their careers whatever the cost.” (I would have thought that the personal objectives were also true for the first group.) Newland acknowledges there were a few journalists who wrote regular financial features involving basic investigative journalism, especially mentioning Malcolm McFee of the Auckland Herald. He also recalls the “few lone voices [who] spoke up here and there and were quickly silenced. There was simply too much at stake and profits were too good to allow anyone to rock the boat.” Or, for that matter, to mention that the boat, low in the water, was driving into the storm.
You will be told that the events that Newland describes are in the past, and will not be repeated. In any case there is simply too much at stake and profits are too good to listen to the cautious or the sceptical.
As far as I can judge our financial markets are not as badly out of line with the fundamentals as they were in 1986 and 1987, but we cannot rule out they could return to that state. It is only by recalling the misleading hyperactivity of the last boom, that we can avoid the next damaging bust. The sober hindsight of Newland’s book is a useful contribution to that end.