Talk of rushing legislation into action to avert finance company collapses is meaningless.

The reality is legislation won’t stop finance companies collapsing, nor will it stop investors losing money. Finance companies are falling over for a number of different reasons. The most common are a lack of money coming in the door, from whatever source a company uses, and the point we are at in the market cycle.

Coupled with these are the lending and management practices of the companies involved. In some cases, such as Provincial Finance, the two issues are management lending in a market they didn’t understand and possibly some fraud. With Bridgecorp there appears to be questionable lending and a reasonably sudden fall in support from advisers. Many of the most recent collapses are small companies who can’t in this environment get enough money in.

I would not be surprised if this rate of collapse runs at one little company a week for the next month or so.

The reality is legislation and regulation won’t stop failures. Likewise, mandatory credit ratings are no panacea either.

Credit rating don’t always get it right and they very rarely expose fraud and mismanagement.

The most important thing investors and advisers can do is understand what each finance company does, before committing money.

One thing which will help is the proposals yesterday for finance company trustees to have greater power. This is something which will help.

My question is will trustees use these powers and will they be able to publicly express their views? An issue they may have is that a company will seek to stop them publicly exposing issues when they are discovered.

This is a little like the issue where the Securities Commission banned Bridgecorp’s prospectus and investment statement, but couldn’t say anything until the company had a chance to respond.