Financial shockwaves girdled the globe, after Lehman Brothers (the US’s biggest bankruptcy) and Merrill Lynch (whose collapse was averted by its sale to Bank of America) became victims of the 14-month-old credit crisis and AIG scrambled for loans to stay afloat. NZ was not spared: the NZX 50 suffered its biggest one-day drop in six years. Finance Minister Cullen says the impact on the wider economy is unclear. But while this probably is the worst financial crisis for a long time, he ventured, this doesn’t make it the worst economic crisis, and our financial institutions are sound enough to cope. The RBNZ agrees the country’s financial system is fundamentally sound. Even so, two consequences are inevitable: credit will be harder to secure, pushing up interest rates, and the financial crisis will slow global economic activity, making it harder for NZ to pull out of recession. Another 50 point cut in the OCR next month is on the cards.

Political Debate Suffers. A more immediate consequence is a slump in the quality of debate about leadership credentials. Cullen deemed National’s John Key unfit to lead us because he once worked for Merrill Lynch as a currency gambler. A gambler? Max Hastings, in The Guardian, looked at the nature of the work done by firms like Lehman Brothers and Merrill Lynch – they borrow stupendous sums in wholesale money markets, “and use them to place bets in a fashion indistinguishable from punters at Newbury racecourse or in Las Vegas.” But at least in a horse race you can see the animal on which you stake your money. In the money markets, however, billions have been wagered on financial instruments of a complexity beyond the understanding even of those who invented them.

Leadership Can’t Be Ignored. Frank Partnoy, in London’s Financial Times, asked if it is just coincidence both Lehman Brothers and Bear Stearns (an earlier victim of the crisis) were led by entrenched men who lost touch with their employees, businesses and mission. Blame could be attributed (he concluded) “not only to a failure of risk management, but to a failure of character.” Labour certainly should ask if it’s prudent to cling to promises of $50 a week tax cuts in today’s uncertain climate. But it’s outlandish to claim Key’s Merrill Lynch experience rules him out from leading NZ in times of global financial turmoil. It’s his character we must judge.

 Copyright © Trans Tasman Media Ltd