[The Wrap] The danger in FMA focusing on “fair outcomes”

Brash would tell the story about his uncle who sold an apple orchard in Motueka in 1971 and used the proceeds to buy 18-year government bonds, then yielding 5.4% a year, to finance his retirement.

But the rampant inflation after the oil-price shock in 1973 meant the real value of his uncle's investment had fallen more than 90% by the time the bonds matured in 1989.

That certainly demonstrated the evils of inflation, but the story contained another lesson: we don't know what the future holds and so an investment strategy that looks very reasonable today might look exceptionally foolish in hindsight.

This lesson is what makes the Financial Markets Authority decision to focus on what it calls “fair outcomes” so problematic.