What the world needs now:better regulation or better management?

Kevin Rudd has had a victory, of sorts.

It is now clear that the G7, won’t be writing new rules for the world’s financial system.

At least, not alone.

Australia’s Prime Minister had been urging that the views of other, too, be taken into account.

He argued that the job of setting the new rules  should be given to the G20, which includes China and Indonesia, as well as, you guessed it, Australia.

Mr Rudd  has a plan already drawn up, to overhaul the world’s troubled financial system.

But he might, once again, be pushed aside, by other leaders, with more clout.

The outgoing US President, George W Bush,  wants any new charter to contain a commitment to free markets.

Even though he now admits a common set of principles might help the world avert future crises.

Speaking in his weekly radio address, Mr Bush urged support for:”the fundamentals of long term economic growth:free markets:free enterprise and free trade.”

The French President, Nicolas Sarkozy, though is pushing for greater supervision of global financial markets.

He is advocating closer supervision of the world’s banks, stricter regulation of hedge funds.

And President Sarkozy has already gathered a great deal of support, among Asian as well as European countries.

Academics, though, are sceptical about the chances of any new global financial architecture, at all, emerging from the current crisis.

One said that it would, simply, be too difficult to get nations, with  vastly different objectives, to reach agreement on on a common agenda.

But even the briefest look at the causes of current crisis reveals one thing, very starkly.

We now know that major failures of management, at many levels, contributed to it.

Every banker in the world, for example, knew, before the present crisis, that it is bad practice to lend money to people who can’t repay it.

That’s the first rule of banking.

Yet that is exactly what so many bankers did.

What new rule would help bankers, who were prepared to be so foolish?

Related stories:

1. World share markets dive as US recession approaches
2. The world will be watching us today

Funds freeze withdrawals

The Federal Treasurer, Wayne Swan, is to hold urgent talks with finance industry representatives, as several investment funds freeze withdrawals.

These funds are not covered by the Federal government’s deposit guarantee scheme.

Those to announce freezes so far include Babcock and Brown, AXA Asia Pacific Holdings and Perpetual.

The ABC says Babcock and Brown will suspend redemptions from its unlisted wholesale Everest Income Fund until further notice.

AXA is freezing withdrawals from its, now unfortunately named, Australian Monthly Income Fund for six months.

And the ABC says Perpetual is doing the same with its Monthly Income and Mortgage Fund.

The government is not likely to extend its deposit guarantee scheme, to funds like these.

And more private funds are, also, expected to announce freezes in the weeks and months ahead.

Many older people, particularly, will be severely embarrassed by these actions.

The deputy Opposition Leader, Julie Bishop, is urging the government to make access to social security available to these people.

These developments place extra pressure on the government.

As Access Economics points out, in its latest Business Outlook report, released today, government’s and central banks simply don’t have the money that would be needed to guarantee all deposits.

Related stories:

1. US bail out plan takes shape
2. Nick Sherry’s super worries

Don’t overreact:Access

Access Economics says there are two things you should remember about the current global economic crisis.

The measures governments around the world, including Australia, are taking to counter it “will fail.”

“Equally, however, current economic conditions are temporary,” the former Treasury economists say in their latest Business Outlook, published today.

“Governments and central banks just don’t have the dollars to turn around markets in full retreat,” Access says.

But “at some stage” markets in general and credit markets in particular will become “less panicked.”

Just when will that happen?

Access doesn’t say.

Economists can be annoying, can’t they?

But what they add is heartening.

“The wheels of commerce will start to turn, once more,” they say.

That’s nice to know, isn’t it?

“However, the longer it takes the markets to get their mojo going again, the worse the short term outlook becomes for both Australia and the world.” Access says.

Economists are determined to maintain the reputation of their discipline as the miserable science.
These, however, do tell us what they will be watching.

China, plus coal and iron ore prices.

Australia’s risk is based on commodity markets, these economists say.

And they do have some words of comfort.

“We urge you not to overreact on your outlook for the economy.

“Businesses and governments make their biggest mistakes in both booms and busts.”

Keep that in mind.

Related stories:

1. Access confident on retail trade – for now
2. Access confident on China

Want to keep working, anyway?

Like a good investment to keep you going through bad times?

The Federal government’s National Rental Affordability Scheme might be worth a look.

The legislation backing it was approved, by the House of Representatives,  yesterday.

It still has to get through the Senate, though, and its passage there is less certain, because the government does not control that house.

The scheme is meant to fulfill one of the Rudd government’s most ambitious election promises.

That is to put more houses into Australia’s rental market, for families on low to moderate incomes.

Your project, if you decide that this is for you, could involve anything between 20 and 100 houses.

The Federal Housing Minister, Tanya Plibersek, says the response from the building industry, so far, has been enthusiastic.

That’s not surprising.

The industry is down, at present.

And no-one likes sitting around, complaining.

There’s no money to be made that way.

The scheme offers tax breaks and “cash incentives.”

But there are “conditions,” too.

The Federal government’s contribution comes as either a $6,000 “refundable tax offset or payment,” for each home, each year.

You could also expect an extra $2,000, per house,  from your local State or Territory government.

“The (Federal) incentive will be provided for a period of 10 years to complying participants,” Ms Plibersek said, adding that it would also be indexed to consumer prices.

The conditions?

The main one is that you would have to rent each home, that your group built, at 20 per cent below market rates.

The scheme, expected to provide 50,000 new homes over five years, does have some attractive features.

Interested?
The Federal Housing Department should be able to help.

Related stories:

1. How inflation hits working families
2. Working families “hit twice”:Rudd

China:what now?

As Australia’s biggest customer, China’s future is now critical to our own prospects.

So, where is it headed?

Access Economics is blunt about that.

“China is no longer the positive it once was,” its economists say.

They repeat what they admit is an “old refrain.”

“While China is fine, Australia is fine.”

“Or, to sit that on its head, if China stops being fine, Australia runs the risk of being bu….ed.”

(We are not being precious, there.  We just don’t want to attract unpleasant e-mails, by using the full word).

“Is there are risk that China won’t be fine?” the Access economists ask.

“You bet there is,” they add.

And that risk has just “worsened again,” they add.

“Notably so,”

They warn, though,  that it won’t be clear, for some months yet, just how much trouble China is in.

“But chances are that its growth will take a larger hit than earlier expected.”

Access has, therefore, slashed its estimate of China’s growth in 2009 to just 7.4 per cent.

Related stories:

1. Australia’s prospects:the torch passes to China
2. China, new doubts on debt

MPs flounder in crisis

Even allowing for political hyperbole, this was egregious.

“It has now caused enormous uncertainty in the financial markets of Australia.

“Greater than that created by any event overseas.”

This was the Deputy Opposition Leader, Julie Bishop, speaking in an urgency debate in Federal parliament yesterday.

She was commenting on the changes the government foreshadowed to its deposit guarantee arrangements, when it signalled that there would be an insurance fee, for the guarantee for deposits above $1 million.

How’s that again?

This change, according to Ms Bishop, has given local markets a bigger hit than, say, the sale and cooking of dud mortgage products, in the United States?

This silly claim brought the immediate response it deserved.

“That’s rubbish,” a government backbencher interjected.

But Australia’s most unfairly maligned public servant, the Treasury Secretary, Ken Henry, had also answered the same point, earlier in the day, much more temperately.

He had said that it was simply unrealistic to get a response package, like the one the government announced on October 12, absolutely right, in all detail first time.

That is simply not the way the world works, in such difficult circumstances.

The Finance Minister, Lindsday Tanner, made some fascinating observations in the  urgency debate.

He said that, faced with the enormity of the global financial crisis, the opposition had, at first, offered its full co-operation, to the government.

The Opposition Leader, Malcolm Turnbull, had even signalled his willingness to join a “war cabinet” Mr Tanner said.

The Finance MInister admitted that Mr Turnbull had not actually said that.

But he said that had been clear from his political posture.

That, too, might be political hyperbole.

Australia, after all, is still a democracy.

And we should all have faith in that system, even though the greatest democrat of the 20th Century, Winston Churchill once declared democracy to be the worst of all political systems, “except for all the others.”

Churchill had a point.

After almost 12 years in government, the Coalition might be forgiven for struggling a little with opposition, at first.

Opposition, certainly is difficult.

But we are all, ultimately, responsible for the work we do.

And the opposition, certainly, needs to do better than it is, at present.

There is a great deal at stake, in the current crisis.

And what people say does matter.

Especially in a global financial crisis.

Related stories:

1. The crisis gets personal
2. The politics of a financial crisis

Super:the legion of the lost

MPs are deeply worried.

A string of backbenchers has been debating what to do about lost superannuation.

“It’s a case of out of sight, out of mind,” one said.

Skilled workers, who come to Australia for short periods, are among those most likely to lose their super.

But the numbers are huge.

There is already $12.9 billion rotting in lost superannuation accounts.

That is an increase of 8.4 per cent, over the past year.

It’s understandable, perhaps.

For younger workers, in particular, superannuation can appear to be little more than a shimmering mirage on a distant horizon.

There are, always, more immediate problems, that must be dealt with urgently.

Yet we will all retire, one day, if we are lucky enough to live that long.

And there are now 6.4 million lost superannuation accounts.

The amounts in some might be quite small.

But there is nothing small or slight about a lost $12.9 billion.

Much of the problem arises, when people change jobs, without fixing their super.
The government is thinking of tackling this problem through automatic roll-overs.

That is automatically transferring money in lost accounts into other, more recently active,  accounts, in the same person’s name.

The problems that could arise with that idea are terrifying.

Besides the government isn’t doing that yet.
Meanwhile, financial advisers should make this a regular interrogation, with all their clients.

“Have you left any superannuation accounts around, from your previous jobs?”

“If so, can I track it for you?”

Related stories:

1. Super:Those other losses
2. Lost super:is it really?

A glimpse of hope

There is just a glimpse of hope, in a speech the Reserve Bank Governor, Glenn Stevens, gave yesterday.

Mr Stevens said governments and central bankers, throughout the world, are now responding appropriately to the global financial crisis.

Mr Stevens did not seek to minimise the threat that the current crisis poses to the world’s major economies.

“But the world is, it seems to me, getting on to a better path, ” he said.

“As a result, the likelihood of a global catastrophe has, in fact, declined over the past couple of weeks.”

Those two lines stand out, like beacons, in Mr Stevens’ speech.

Especially as he is one of the very few reliable observers making hopeful comments of any kind, on the global crisis, at present.

But even Mr Stevens admits that there is still much more work to be done.

Especially on the details.

“and one area in which further international co-operation would be helpful is in the area of making making these various guarantee arrangements broadly consistent,” he said.

“Perhaps the finance sector, globally, will return to fulfilling its historical role of being ‘the handmaiden of industry,’” Mr Stevens added.

But “with a little less exotic innovation of its own,” he added.

That’s a consumation devoutly to be wished.

See more at www.rba.gov.au

Related stories:

1. Wall Street offers little hope