The global financial crisis that gathered momentum from September ruined lives and is ongoing. PAM GRAHAM of NZPA reports.

Wellington, Dec 18 NZPA - In the middle of 2007 the board of Infratil reflected that if a bank had just offered them an unbelievable deal on a billion dollars what were others being offered.

"When some one offers you an almost unimaginable amount of money very cheaply you just think the system is starting to fail," an Infratil director told NZPA.

A lot of people have said they saw the financial crisis coming but Infratil put some money on it.

In mid-2007 the Wellington-based infrastructure investor bet on a fall in the S&P500 index. It was a departure for a manager of investments in airports and electricity companies, and one that some people think was totally inappropriate, but Infratil made $45 million from it.

They were not alone in positioning for the fall. Between June and August of 2007 Brook Asset Management's Paul Glass made the biggest portfolio reallocation of his career. His Alpha Fund invested in equities but "the bear" put 55 percent of the fund into cash.

It is an interesting to reflect whether he would have done that had he been an employee of a big fund manager, but he had relative freedom as then part owner of the firm.

In a presentation to clients in August 2007, Mr Glass identified six bubbles. He did not know how they would burst but he knew they would and it would be dramatic.

Infratil believed Wall Street was going to do more than just top out, but it didn't expect the United States property market to blow up the global banking system.

The crisis that gathered momentum from around September ruined lives.

In Britain, a New Zealand-born fund manager earning Stg300,000 ($NZ850,581) a year jumped in front of a 5.35am train as it approached Taplow station in Buckinghamshire.

His wife told Amersham Coroners' Court of the human cost of the credit crisis.

In Tauranga, 90-year old Gwendoline Harrison faced losing the house she had lived in all her married life as a result of investing in property company Blue Chip.

As she fretted, Bridgecorp boss Rod Petricevic played golf and unsuccessfully battled to keep his Porsche as receivers picked over the ruins of the second high flying company he has led to collapse.

Hanover Finance boss Mark Hotchin held a lavish 50th birthday bash in Fiji as he asked investors to wait for their money, though he admitted on his return that it was a bad look.

There is extensive analysis of the crisis. The left said the free markets failed and were bailed out by governments.

The right said let the markets work and the worst thing you can do is save those who fail. Transparency will protect investors.

There have been many calls for consensus in the response to the crisis.

It will be interesting to see if a sensible middle ground is found to restore confidence in the capital markets that fund businesses that provide jobs.

"You have to find the right kind of balance between allowing the markets to do their work, while recognising that they are imperfect," legendary investor George Soros told Bloomberg Television.

Mr Glass advocated sensible regulation to give investors the information they need. That meant reports written in plain English and no important numbers either buried or not there at all.

He has looked at 16 documents published by Hanover and believed they were deliberately complicated.

"I am a professional investor with 20 years experience in the market and I can't make head nor tail of those reports."

Mr Glass also wants to see more proactive watchdogs and a more proactive media.

Questions are also being asked about the accuracy of credit ratings, the positiveness of analysts' reports, the independence of so-called independent reports and the accuracy of audit reports.

And they are also being asked about the performance and resourcing of a commercially focused media.

The huge fixed interest rate market in the US where banks parcel up and onsell loans are no longer being ignored by policymakers.

The Federal Reserve is being criticised for slashing interest rates between 2001 and 2004, fuelling the property boom, while resisting calls for regulation of those lending people more than they could afford.

In October, Alan Greenspan, the 82-year-old former chairman of the Federal Reserve, was asked by members of the House Committee on Oversight and Government Reform if he had got it wrong and whether he was sorry.

"Yes, I've found a flaw. I don't know how significant or permanent it is. But I've been very distressed by that fact," he said.

The governance and ownership structures of financial institutions, and their payouts to senior employees, are being questioned as never before.

There are accusations that a culture of positivity affected the judgments made inside financial firms and banks.

It has been said that fund managers went with the flow in markets because a profit had to be posted every quarter, and that speculators were distorting markets and putting legitimate businesses at risk.

There were calls for a change to the way monetary policy was managed.

Infratil had a unique insight into what was going on in lending to corporates but how were the rest of us to assess the quality of banks' loan books?

The extremeness of the events had triggered extreme responses from authorities and has got people thinking a little far outside the box.

Some of the so called national conversation we've been having in New Zealand about the response to the crisis has been loopy.

"The challenge for the government is to strike the right balance," Benedikte Jensen, research director of the New Zealand Institute, said.

"The challenge is to position New Zealand in a starkly different global environment."

Ultimately Mr Glass and others are of the view that we are getting a painful generational lesson in the need to live within our means. It is a lesson he believed was not over.

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