But we do wonder why, if we are acting in close collaboration with Australia the terms of the two interventions are so different.
Last week we faced two problems -
- people began withdrawing money from the bank and putting it under the matress; and
- banks were not lending to each other and were funding it difficult to get funds from offshore.
The announcement on Sunday deals with the first problem, but does very little to help the second, and more important propblem - there is very little money available for lending at present. This puts huge pressure on businesses that depend on short term borrowing for cash flow purposes. Australia in contrast has addressed this problem by two actions not being taken in New Zealand
- The Government will also guarantee all term wholesale funding by Australian banks and deposit-taking financial institutions operating in international credit markets.
This is intended to help Australian institutions to raise funds overseas in the current extremely tight market and will restore confidence in credit markets.
- Mr Rudd also announced the Government would direct the Australian Office of Financial Management to buy an extra $4 billion in residential mortgage-backed securities. This is in addition to the $4billion of Government funds already committed to home lending and is intended to ensure the Australian mortgage market has access to sufficient funds.
Why is our policy different?