Year of two halves

by Rebecca Macfie / 27 December, 2008
2008: it was the year we worried about the world financial crisis, the price of cheese and petrol and losing our jobs. Credit became harder to get, violent crime shocked the nation - and the US got its first black president.

The year started with the death of a hero and ended with the central banker making heroic efforts to breathe life into a sickly economy.

In between, markets gyrated, titans were humbled, and we worried about whether economic Armageddon had arrived. For a while, it became necessary to arrange a bank overdraft in order to fill up the car at the pump. The price of cheese became a matter of urgent national debate. So did light bulbs, and whether busybody politicians had the right to tell us to change them.

One bunch of politicians decided we needed to do our bit for climate change and brought in the world's most ambitious emissions trading scheme; another bunch shelved it and decided to head back to the drawing board for a good old chinwag about what, if anything, to do about climate change.

After spending the past few years spraying mortgage money around like there was no tomorrow, the banks rediscovered prudence and started asking homebuyers to put down a 20% deposit. (Yes, this was news. Could there perhaps be a connection between the abandonment of such caution and the development of the housing bubble that burst in 2008?)

The dollar hit post-float highs, then fell in thumping great increments.

Parents had to explain the meaning of two long-forgotten "R" words to their children: recession and redundancy.

Amid all this were a few rare moments of clarity and unity. When Sir Edmund Hillary died on January 11, New Zealanders were clear about what they had lost. The then Prime Minister Helen Clark put it nicely: "He was a heroic figure who not only knocked off Everest, but lived a life of determination, humility and generosity."

Thousands turned out to see Sir Ed off and hundreds of thousands watched his state funeral on TV, basking in the glow of qualities we liked to think were quintessentially Kiwi: modesty, courage, resourcefulness, understatement. It was noted that, world famous though he was, Sir Ed was accessible to anyone who wanted to look up his number in the phone book and give him a bell.

The royal family caused minor indignation when they snubbed the funeral (Prince Charles was otherwise engaged with the Mutton Renaissance Campaign in Yorkshire) in favour of a private service in the UK. But nobody really cared: a proud New Zealand gave Sir Ed a good send-off (knowing he would have hated such a fuss being made of him).

And there was barely a voice in the land that wasn't shouting for Mahe Drysdale on August 16. A million Kiwis tuned in that night, hoping for the best from the big man who had led the New Zealand team into the stadium for the opening ceremony of the Beijing Olympics. Drysdale had already proven himself as rowing's greatest, winning three world championships and coping stoically with a comeback challenge by Rob Waddell earlier in the year.

But a bad case of Beijing belly struck him down in the days before the race: he led for the first 1500m but crossed the line third, depleted, vomiting and unable to walk unaided. "I put everything out there, and it wasn't good enough," he said after the race. Yes it was, Mahe: that bronze was worth its weight in gold. Even the head of the Australian Olympic Committee was so impressed by the Kiwi's grit and determination that he was out of his seat screaming for victory for Drysdale.

Which, coming from the Aussies, is saying something. If Drysdale had won, they would probably have claimed him as their own. They claimed record numbers of other Kiwis as their own this year. Nearly 48,000 went west across the Tasman in the year to October and only 13,200 came east, marking 2008 down as the year of the biggest transtasman brain drain.

No need to remind the last person out to turn off the lights - this winter, yet again, lake levels fell and the lights threatened to go out all by themselves.

Yes, it was a discombobulating sort of a year. The big story was the economy, and how it all went suddenly and dramatically pear-shaped.

Who'd have thought it, over that blissfully long, hot summer? Even the experts couldn't pick it. Westpac's economists, for instance, were predicting in February that "New Zealand can weather the storm": 2008 would be a "great tug of war between massive counteracting forces - high interest rates, high petrol prices and the housing correction on one side; very strong wage growth, a wall of dairy cash, and the carrot of tax cuts on the other. We believe the income story will win."

The US subprime crisis was but a distant, convoluted phenomenon back in those lazy days of summer. We had no need to fret about what was happening in the market for collateralised debt obligations and credit default swaps. The world economy would keep on growing, Australia and Asia - the twin props of New Zealand's future well-being - would keep ploughing along, and the biggest worry was inflation, the economists told us.

Even during the depths of the frigid winter of 2008, when recession arrived and householders struggled to keep food on the table (grocery prices were up 11.4% in the year to June), gas in the tank (up nearly 26% in the year to June), and the bank manager at bay (Reserve Bank Governor Alan Bollard's Official Cash Rate medicine had finally started to have its restraining effect), optimists were still picking a short, shallow recession.

The dairy boom would save us, the end of the summer drought meant the farmers would do better, Michael Cullen's October tax cuts would help, and the new rich in China and India would buy ever-increasing volumes of our nutritious farm produce. And, hey, practically anyone who wanted to work could still get a job, couldn't they?

In the background, though, a slow-motion train crash was occurring. The subprime crisis, which had turned into a worldwide credit crunch in August 2007, triggering alarm and extraordinary intervention by central banks, started having a ripple effect here.

Banks stopped playing fast and loose with credit and started playing hard to get, which meant perfectly good business propositions went begging. Firms that couldn't hire staff for love or money a year ago were suddenly rushing for advice on how to lay off workers without landing in trouble with the Employment Court. Shopkeepers struggled as householders snapped their wallets shut.

Gradually, it dawned that the bizarre machinations of the US housing and mortgage market were of intimate interest to this small indebted nation at the bottom of the world. Would Freddie Mac and Fannie Mae go broke (a year ago, most of us would have guessed these oddly named outfits were characters from a Disney movie, but by September they'd become household names), or would they be bailed out by the US Government? And if they did fall over, would that be the end of the world as we knew it?

They didn't go broke, and they were rescued in spectacular fashion. But any fantasies that the credit crunch would quickly work itself out and the world would go back to normal were shot down over a few dramatic days in September: Lehman Brothers, one of the biggest names on Wall Street, went broke; AIG, the world's biggest insurer, had to be rescued with a $US85 billion US Government bailout; and Merrill Lynch, the third biggest investment bank, was scooped up by Bank of America.

Panic broke out, credit markets were stupefied, and learned people made allusions to the Great Depression of the 1920s and 30s.

The US Government - bastion of capitalism - turned socialist in a bid to stop the whole financial edifice from collapsing, voting in a US$1 trillion fund to buy up toxic bank assets linked to collapsing house prices. In the UK, the Government took stakes in big three big banks - HBOS, Lloyds TSB and Royal Bank of Scotland - and threatened full-scale nationalisation if the banks didn't play ball by resuming lending to businesses.

Governments around the world rushed to pump taxpayer money into banks and planned big spending packages to keep their economies moving. Central bankers everywhere slashed interest rates.

Even China, where 30 years of powerful growth had come to be seen as an unstoppable force of nature, faltered worryingly: thousands of factories closed as Western consumers stopped buying their products, growth slipped to single digits, and the Communist Party regime declared a stimulus package worth nearly $1 trillion.

Iceland had to be bailed out by the International Monetary Fund.

Here in New Zealand (which is not dissimilar to Iceland and its reliance on foreign lenders to fund a whopping current account deficit), the Labour-led Government brought in a deposit guarantee scheme to ward off the threat of a run on the banks.

And Alan Bollard put his inflation worries to one side, taking a machete to interest rates in the hope of getting people spending again. By December, he'd hacked the Official Cash Rate back to 5%, its lowest in five years, and told the banks to get cracking and lower their rates to borrowers.

What had started out in August 2007 as an incomprehensible mess in the esoteric world of international finance had turned into a threat to what economists cutely called the "real" economy.

Global leaders rushed to Washington on a mission to save the world, and wrote a communiqué promising never to let such a mess happen again. Newly inaugurated Prime Minister John Key dashed off to Apec in Peru, where he ruminated on the merits of getting free trade talks moving again, and on the need to whip his old mates in the money markets into line with some thoughtful regulation.

In the US, Barack Obama, elected to worldwide adulation, declared in a grave but thrillingly optimistic victory speech that the task was to create jobs and opportunity, prosperity and peace. But hope came with carefully crafted caveats. "The road ahead will be long. Our climb will be steep," America's first black president-to-be said.

As if to prove the point, Mumbai succumbed to a terrorist attack in November, and teetering US car makers begged for a taxpayer bailout to prevent the closure of factories and massive job losses. Their executives even offered to work without pay.

No sign of such self-sacrifice here, though. Fonterra chief executive Andrew Ferrier made nearly $4 million in the past financial year, during which the company's ambitious China strategy turned to tragedy when its joint venture partner, Sanlu, sold milk contaminated with melamine. In the ensuing scandal it emerged that as many as six babies had died and 294,000 had become ill (although just how many were affected by Sanlu milk as opposed to powder from the 22 other companies also discovered to have sold contaminated product may never be known).

By the end of the year, dairy farmers not only had kissed goodbye to their $200-million investment in China, but were also watching dairy commodity prices drop like a stone from their (briefly) stratospheric heights. That protective wall of dairy cash that had been so admired earlier in the year turned out to be a flimsy structure in the face of a global downturn and falling demand.

Elsewhere in the economy, the twin certainties of recent years - that house prices just keep going up and unemployment keeps on falling - spent 2008 in denial. House prices hit their peak in November 2007, and fell 7% in the following year; unemployment hit a low of 3.4% in December 2007 and was up to 4.2% by September.

And our own toxic financial sludge continued to cause grief. Finance company moratoriums became everyday events, with some observers estimating that $2 billion in investor wealth had been destroyed. Some finance company bosses wound up in court (including Bridgecorp's Rod Petricevic and Robert Roest); others won remarkably patient endorsement from their long-suffering shareholders for principal-only repayment plans that will take years to play out (Hanover's Mark Hotchin and Eric Watson).

Despite the financial turmoil, investors flocked to KiwiSaver, with numbers hitting more than 830,000 by the end of October. But the recession was having an effect here, too: as employers took on fewer people, the numbers being automatically enrolled slowed down, and more people opted for contributions "holidays".

Then the National Government decided to downsize KiwiSaver by dropping the minimum member contribution rate from 4% to 2%, capping the compulsory employer contribution at 2% , and scrapping the employer tax credit and fee subsidy. These changes were supposed to help pay for those promised tax cuts - alas, by the time the various unforeseen consequences of the changes were patched up, there were no savings at all for the new Government.

The stormy world economy came with a notable silver lining, however: oil prices, which hit a record US$147 in July, were by mid-December hovering above US$40 - translating into meaty savings at the pump. There was talk that falling world demand could force it as low as US$25 a barrel.

But then again, cheap(er) petrol might not be good for our already worsening greenhouse gas emissions profile. Figures released by the UN Climate Change Secretariat in Oslo showed New Zealand had the sixth-highest growth in emissions between 1990 and 2006. Only Turkey, Spain, Portugal, Australia and Greece were worse. All up, the secretariat said, our emissions rose 26%. What was it that someone once said about New Zealand becoming carbon neutral?

Of course, that goal is history now. The Nats' aim is for New Zealand to cut emissions by 50% by 2050 (50 by 50 - it's catchy). Just how this is to be achieved is a mystery, though, because one of their first acts on becoming the Government was to defer to the Act Party's wishes and shelve Labour's Emissions Trading Scheme. Which meant Associate Climate Change Minister Tim Groser toddled off to the UN Climate Change Conference in Pozna?, Poland, this month - a preparation for Kyoto Mark II - with nothing but a fresh slogan and a sheaf of defunct policies in his briefcase.

Meanwhile, our old mates in the UK decided to do their bit for climate change (not to mention their own domestic tourism industry) by punishing those who holiday in places as faraway as New Zealand with a departure tax that will rise from $113 to $240 within the next two years. As if new Tourism Minister John Key didn't have enough to worry about already, with overseas tourist numbers expected to fall 10% over the summer season.

Mustn't grumble, though: Tourism New Zealand boss George Hickton was over in London flying the New Zealand flag - or, rather, blowing up that humongous inflatable rugby ball - and declaring, "This economic situation is not something we can control, but what we can control is our reaction to the situation."

Nothing to fear but fear itself ...

Events of earlier years caused aftershocks during 2008.

Last year's "terror raids" resulted in 17 people being sent for trial on firearms charges.

Former policemen Brad Shipton and Bob Schollum, who raped a 20-year-old woman in 1989, were released on parole, along with their co-offender, Peter McNamara.

Former Assistant Police Commissioner Clint Rickards, who had been cleared of rape charges against Louise Nicholas, was admitted to the bar as a lawyer.

The medals stolen from the Waiouru Army Museum were returned via Auckland defence lawyer Chris Comesky and his contacts in the criminal underworld.

Chris Kahui walked free from court after a jury found him not guilty - following an hour and 20 minutes' deliberation - of the murder of his three-month-old twin sons, Chris and Cru.

Wiremu and Michael Curtis were found guilty of murdering three-year-old Nia Glassie, and Nia's mother, Lisa Kuka, was found guilty of the toddler's manslaughter.

Liam Reid was sent to jail for the rape and murder of deaf woman Emma Agnew and the rape, sexual violation, robbery and attempted murder of a Dunedin student nine days later.

Lipene Sila was found guilty - after four days of jury deliberations - for running down and murdering two teenage girls outside an out-of-control party in Edgeware Rd, Christchurch, in 2007.

Tragically, 2008 brought a new wave of shocking crimes. Bright young Dunedin economics graduate Sophie Elliott was stabbed to death. Scottish tourist Karen Aim was slain in Taupo. Krishna Naidu, 16, was stabbed while he worked in his father's Auckland dairy. A plane from Blenheim was allegedly hijacked, for which a woman has been sent for trial.

Within a few horrific days in June, 30-year-old liquor store owner Navtej Singh was shot in cold blood while he minded his Manurewa business, 80-year-old Yang Yin Ping died after being fatally bashed in her Manurewa home, and 39-year-old Joanne Wang was run down and killed in the Manukau shopping centre while pursuing thieves who had snatched her handbag.

It didn't go unnoticed that all three victims were Asians. The Asian Anti-Crime Group, lobbying for tougher sentences, organised a protest march that drew a crowd of 15,000.

There was no marching, just extraordinary admiration for the family of Austin Hemmings, the good Samaritan and devout Christian who was killed while helping a woman being attacked in downtown Auckland at the end of a working day. Hemmings' wife, Jenny, humbled a nation with her generosity and forgiveness.

Equally impressive, Air New Zealand boss Rob Fyfe led the airline through the grief of the Airbus crash and loss of five New Zealanders off the coast of France with empathy, openness and compassion.

Not everything that happened in 2008 was bad or sad. Some things were just, well, a bit mad.

The Labour-led Government signed a world-first free trade agreement with China, only to have it openly attacked by its own Foreign Affairs Minister, Winston Peters.

It bought back the railways for $690 million - a price that even it had to admit was generous - and then appointed the man who had privatised it in 1993, Jim Bolger, to chair it.

In a bizarre diversion, shower heads became the subject of outraged commentary when the former Government suggested low-flow varieties ought to be mandatory.

Rodney Hide's yellow jacket was referred to the police for review under the Electoral Finance Act, following a jacked-up complaint by one of his own supporters.

The shiny pate of Solid Energy's chief executive was nearly adorned with a protester's cream pie and a dusting of coal at the company's annual meeting. But Don Elder proved more than just a clever coal miner: "They tried to chuck a great big cream pie in my face from point-blank range and didn't succeed. I knocked their arm and they missed and they tried to pour coal over me, but I managed to grab the bag out of their hands."

Sarah Palin, alas, was not so quick-witted. All the very best for that hunting trip with President Sarkozy, Sarah.

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