Investment advisers to face tougher rules

Financial advisers can expect to face much tougher licencing requirements.

Closer official scrutiny of their operations is also likely.

These developments are likely to follow a Federal parliamentary inquiry into Financial Services in Australia.

They were prompted, particularly, by the collapse of Storm Financial,  Opes Prime and other recent corporate failures.

Investors, who have lost millions in schemes promoted by companies like these are, mostly still waiting even for relatively meagre payouts.

All they have receive so far, at least in abundance, is sympathy.

The Federal Superannuation and Corporate Law Minister, Nick Sherry, added to that yesterday.

“The Rudd government feels for families affected by these corporate collapses,” he said.

That statement of concern was included in a press release Senator Sherry issued, welcoming the  inquiry, which will be conducted by  the Parliamentary Joint Committee on Corporations and Financial Services.

Committees like this one have strong powers both to compel witnesses to appear and to punish those whose evidence is seen to be either false or  misleading.

Some measures, tightening the rules under which financial advisers operate, have already been flagged.

A new national regime, which will be introduced into parliament by mid year, will include:-

• Making margin loans a financial product, under the Corporations Act.
• Dramatically increasing levels of simple, plain English disclosure documents, for new investment
• Compulsory disclosure of commissions
• Imposing a tough responsible lending obligation on all margin lenders
• Boosting consumer protections and options for redress, by requiring margin lenders to be licensed, properly trained and members of an external disputes body.

None of this, though, will ever replace the normal caution, that the investors themselves will still need.

The share market collapse, over recent months, has, at least contained on very important lesson.

It is that using equity in  your home, to play the stock market, is definitely not a one way bet.

That might have appeared to be so, in the past.

But that lesson must not be allowed to fade, in the years ahead.

Related stories:

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2. Rumourtrage to be curbed
3. Disclosure documents “unreadable:”Sherry

Treasury not optimistic on the global economic crisis

If Australia’s Treasury officials share Ben Bernanke’s optimism, about prospects for an early end to the global economic crisis, we will never know it.

The US Federal Reserve Chief is saying that there is a “reasonable” chance that his country’s recession will end late this year, if America’s banks are fixed.

And the US President, Barack Obama, is declaring that this is exactly what he intends to do.

The National Party Senator Barnaby Joyce asked one of the Australian Treasury’s most senior officials yesterday, if he could predict when Australia’s pain, from the global crisis, might end.

Dr David Gruen, executive director of Treasury’s macro-economic group, said he could not.

“We forecast out to the middle of 2010,” he said.

Dr Gruen said Treasury merely provides projections, after that.

And those projections are based on the assumption that the economy will return to trend.

Private Briefing approached Dr Gruen, when the Senate Estimates Committee broke for morning tea, to ask if his reply implied that there would be no recovery before the middle of 2010.

He told your reporter that this implication  should  not be placed on what he had said.

Clearly, though, Treasury is not forecasting a recovery before then.

Dr Gruen also said  that the Treasury is continuing to get l  an “overriding signal” that the international economy is “deteriorating.”

The Treasury chief  Ken Henry, who arrived  later, didn’t have much comfort to offer, either.

He said Australia is “going into” its bad times.

Mr Henry’s message was underlined by   Pacific Brands announcement that it was sacking 1,850 workers from its clothing factories  throughout Australia.

The government immediately promised the sacked workers retraining support under its textile, clothing and footwear package.

It might also offer Treasury officials a little  retraining in optimism.

A former Labor minister, John Kerin, made no secret of his dislike of  Treasury bureaucrats.

He once volunteered his own definition of the word  “catastrophe.”

He said that’s what happens when  a busload of Treasury officials goes over a cliff – with two empty seats.

Related stories:

1. Australia “better positioned” to survive global crisis:RBA
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3. Treasury finds $67.4 billion worth of tax breaks

China:we can still hope

A  popular theory among local economists, before the great crash, was that rising living standards in China and India would cushion the impact of any global downturn on Australia.

The idea, then, was that most of the export driven demand that might be lost, in  those  countries, would be replaced by domestic demand, designed to meet rising living standards.

So those two countries, in particular, would continue to buy Australia’s iron ore, coal, wheat and meat.

Understandably, little has been heard of that theory, since Lehman Brothers collapsed last September.

One expert, though, believes that idea might have been abandoned too quickly, at least in relation to China.

“I don’t know about India,” Vikram Nehru, the World Bank’s chief economist for the East Asia Region, told Private Briefing.

However, Mr Nehru, said the Chinese government’s ability to influence all sections and regions in that vast  country must not be underestimated.

He said the great thing about China was the ability of the Chinese government to substitute domestic demand growth for lost export demand growth.

Mr Nehru said some analysts now expect the   Chinese economy to resume  expansion later this year.

That had yet to be seen.

But the Chinese government could quickly stimulate demand in housing and other non-tradable areas, such as housing and  infrastructure development.

He said millions of Chinese people were already making their way back to their home villages, as a result of the global economic crisis.

And the Chinese government is well aware of the dislocation costs this involves.

Mr Nehru also said that most countries in the East Asia region had been well prepared for the global economic downturn, when it arrived.

Their bankers had been lending prudently.

So their banking systems were strong.

Mr Nehru  also noted that  many  East Asian countries are still recording growth. But he admitted that World Bank growth estimates for the region, which are  now being revised, will probably be cut, when they are released in March.

However, he remains cautiously optimistic, even predicting that  East Asian countries could help the world recover from the present crisis,  if it does not go on too long.

If the crisis is extended, though, the results would be less predictable, Mr Nehru said.

Related stories:

1. Access confident on China
2. Wall Street offers little hope
3. China, new doubts on debt

No. ATM doesn’t stand for All That Money

It costs your bank no more than 10 cents  to process the withdrawal you make from an ATM is doesn’t own.

Yet some banks have been charging you up to $4, for that privilege.

The Reserve Bank is not impressed.

And it wants to see more – and more effective – competition.

It explained exactly what it intends to do, in a press release which you can see on its website, at www.rba.gov.au.

There are no surprises.

Its final objectives, set out in its latest Access Regime, are basically similar to those it first aired in December.

This time, though, the  Reserve Bank will be putting its reforms  into effect from March 3.

The central bank was blunt about its objectives.

“…in the board’s view there should be no foreign fees,” it declared.

The reforms will:-

• make the cost of cash withdrawals more transparent to cardholders and place downward pressure on the cost of ATM withdrawals.
• help to ensure continued widespread availiability of ATMs by creating incentives to deploy in a wide variety of locations, providing consumers with choice and convenience.
• promote competition between financial institutions and
• make access less complicated for new entrants.

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Toxic debt:Rudd’s warning

Kevin Rudd is warning that the world could soon face a far bigger financial crisis than anything it has seen so far.

The Prime Minister told parliament yesterday that this grim prospect would emerge, if thetoxic debt, which he said is now “polluting” the world’s banking system, is not dealt with successfully.

This was the toughest warning the Prime Minister has given, since the global economic crisis began last September.

He was addressing Parliament, during question time.

“For the benefit of the House, it is important that we are seized by the significance of this,” Rudd said.

“That is why, in the period ahead, action on toxic assets on balance sheets is of critical importance in restoring private credit flows.

“If we do not see the restoration of private credit flows in the global economy, the challenges we have faced to date will pale into insignificance compared with those we will confront in the future,” Rudd said.

“…unless this is dealt with, we are facing the gravest of crises indeed,” he added.

Rudd estimated that the total value and potential losses of toxic US-originated credit assets now ranges between US$2.2 trillion and US$3.6 trillion.

“The impact which that in turn has on private credit flows to the real economy is huge and therefore has the potential to have a huge impact on further cuts in economic growth,” he said.

No-one, least of all Kevin Rudd himself, would claim that Australia’s present Prime Minister is a great orator.

This declaration, though, is certainly one of historic importance.

The US President, Barack Obama, is struggling to deal with these issues at their source, in the US banking system.

And as the US economist, Paul Krugman, points out, US authorities have been seizing small American banks, that it deems insolvent, and effectively nationalising them, at the rate of about two a week.

He says, too, that bigger American banks, like Citigroup and the Bank of America may soon suffer the same fate.

Even the former Federal Reserve chairman, Alan Greenspan, a traditional supporter of the free market system, has acknowledged,that significant bank nationalisations might be necessary.

The authorities intention, in each case, would be to purchase the potentially insolvent bank, clean it up, then sell it, again, to private investors.

Mr Rudd also revealed yesterday, why his government is relying primarily on cash handouts and infrastructure spending, rather than tax cuts, to stimulate the Australian economy.

He said tax cuts can be hard to reverse, when the economy is strong again, and the government needs to start chalking up surpluses, once more.

Related stories:

1. Australian families constrain debt, but governments…
2. PM signals business credit boost
3. Debt crisis:Australia escapes the worst, so far

Share markets still looking for the floor

The US banking crisis is still casting a dark shadow over the world’s share markets.

The Dow Jones industrial index closed more than 100 points down Friday, US time, reaching another new six year low of 7,365.67 points.

Europe was much the same, with the DJ Stoxx index falling 71.80 points over the weekend, Australian time, to  close at 1,814.48 points.

Shares in the Royal Bank of Scotland plunged almost 12 per cent, on a single day’s trading, in that time.

Even Australia’s Treasurer, Wayne Swan, has responded cautiously to the bank rescue package, that the US Treasury Secretary, Timothy Geithner, announced last week, giving it heavily qualified praise.

In a television interview yesterday, Mr Swan described Secretary Geithner’s package as “a very important step along the road.

“But there’s more work to be done so that we can get a coordinated international response (to the global economic crisis),”  Mr Swan said.

“Particularly when it comes to financial system stability,” he added.

It was market disappointment, with the Geithner banking package, that set off the latest bout of weak trading, on world share markets last week.

That’s understandable as one US economist Nouriel Roubini now estimates that total US bank losses, so far, will add up to $US1.8 trillion, a figure that puts President Obama’s $US 787  billion stimulus package into the shade.

Mr Swan also said that both he and the Prime Minister Kevin Rudd are looking forward to seeing some substantial progress at  G20  finance and leaders’ meetings, that are scheduled to place in late March and early April.

Meanwhile, as Australia’s Reserve Bank Governor, Glenn Stevens, admitted last Friday, the short term outlook for Australia remains weak.

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Reserve Bank Governor states his case

The Reserve Bank Governor Glenn Stevens is urging Australians not to be overwhelmed by the global economic crisis.

Appearing  before a parliamentary committee in Canberra early today, Mr Stevens said China’s emergence still has several years to run.

“It has years to run and Australia will benefit from it,” Mr Stevens said.

“We should not lose sight of that, or other positives,” he added.

Mr Stevens admitted though that the global economic turmoil, which followed the collapse of Lehman Brothers last September, had been the most intense seen for decades.

And it had damaged both business and household confidence in Australia.

But he added:”The worst of the turmoil was actually short lived – a matter of weeks.”

He admitted, though, that this  had not ended the matter.

Since then there had been a series of events which have had significant impacts on the global economy, Mr Stevens said.

And the short term outlook for growth is still weak.

But, if the bank’s views turn out to be even close to correct, Australia will still do better than many other countries,” Mr Stevens said.

“We have claimed all along that Australia was better positioned than many countries to ride out the international difficulties,” he added.

He is now replying to questions put to him by members of the House of Representatives Economics Committee.

The new Shadow Treasurer, Joe Hockey, is among those appearing on the committee panel.

Related stories:

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2. Rate cut hopes rise on Reserve Bank statement
3. Reserve Bank pauses, but…

Jawboning back in style as economy sinks

They are all at it.  The Treasurer.  The Reserve Bank.  And you can expect to hear a lot more of it.

Jawboning that is.  We haven’t heard that  word for a while.  But it’s right back in style now.

Jawboning, of course, is economists’ jargon for trying to talk up the economy, in bad times.

Some might see it as a mark of desperation.

But as regular readers know, the Reserve Bank’s assistant governor, Malcolm Edey, launched the season in Sydney yesterday, reminding business leaders that there are – apparently good -  reasons to expect that Australia will continue to perform better than most other countries  in the current global downturn.

Mr Edey also urged his audience to look for signs of improvement, including some that can already be seen.  He said these include  stimulatory measures, both here and abroad and the “normal cyclical dynamics.”

The Federal Treasurer, Wayne Swan, was just hours behind him.

He told reporters in Sydney that the latest retail sales figures show that the government’s economic stimulus packages are working.

Mr Swan pointed, in particular, to the 1.8 per cent growth the Statistician recorded in Australia’s retail sales over the December quarter.

That, of course, was on seasonally adjusted figures.

On trend figures, which the Bureau regards as more reliable, that growth was just 0.7 per cent.

In volume terms, which eliminate price effects, the picture was even more subdued.  Trend growth, on that measure, was just 0.3 per cent in the quarter, while seasonally adjusted figures showed 0.8 per cent growth.

The detailed figures were particularly interesting.

They showed that Australians continued to spend strongly on food, during the quarter, with supermarket sales rising  1.8 per cent.

But we are not eating out as much as we once did.  The nation’s cafes, restaurants and take away food bars all suffered reverses in the quarter.

So did Australia’s clothing and soft goods stores.

But Mr Swan wasn’t dealing with small stuff, like that.  His message was  firmly upbeat.

He pointed out that Australia is still doing much better than the United States, where retail sales plunged by 7 per cent in the December quarter.

“So this is a solid result,” the Treasurer said.

“And I think  it shows that our Economic Security Strategy has supported employment in Australia in this critical period.”

Not everywhere, of course.  Virgin Blue announced yesterday that it would be shedding 400 jobs.

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