Capitalism didn’t cause crisis: Turnbull

I’m awestruck by the opposition leader’s grasp of the ‘global financial and economic crisis’ .  The opposition leader vehemently denies freemarket capitalism caused crisis, he says:

“Those people who say, oh this was caused by an excess of capitalistic free-market activity are quite wrong,” Mr Turnbull told ABC Radio on Friday. The catalyst for the crisis – the US sub-prime collapse – was the result of interfering with and subsidising the housing market, he said.
“The fundamental error was … lending money to people who can’t afford to pay it back.”
“You do that on a large scale, you’ll end up with these problems.

I was hoping Malcolm Turnbull would explain in more detail what he means by his simplistic comments.  Geez, I can find another factor without much effort (Lax oversight perhaps? ASIC gave `clean bill of health’ to Storm).  And I actually thought that multiple failures of the system were responsible.  Silly me.  Oh, and his opinion fits with his personal profile as an elitist.

SO, if his claim were true that would mean he should have known full well that easy money was being dished out to those who could least afford to pay it back, if economic conditions did happen to change, like they obviously have?

He should have also taken time out to explain to his boss why it’s not a good idea to encourage people to lend until their hearts were content because interest rates were low and there should be no fear of an economic downturn whilst he was at the helm, perhaps?

But then again, he used to be an investment banker which explains why he’s so keen to simplify the whole problem.  The deregulation of banking wouldn’t have been a major contributing factor would it?

Perspective: Why ‘Market Fundamentalism’ Has Failed

The current crisis just as convincingly represents a failure of the Big Government/Neoconservative (or, outside the United States, what is called“neoliberal”) model that promotes deregulation, reduced supervision and oversight, privatization, and consolidation of market power in the hands of money manager capitalists.

In the United States, there has been a long-run trend that favors relatively unregulated “markets” over regulated banks that has also played into the hands of neoconservatives. The current financial crisis is a prime example of the damage that can be done by what has been called the “post-regulatory environment” (Thomas 2008).

The swing toward markets and away from regulated banking greatly increased risk, while at the same time it necessarily extended government assurance to the unregulated institutions for the simple reason that the government cannot allow a financial crisis to threaten the economy.What Bernanke called “The Great Moderation” is also known as the “Greenspan put”—the belief that no activity is too risky because the Fed will intervene if things go bad. Unfortunately, it is Chairman Bernanke who is left to clean up the mess left by years of lax oversight and deregulation that operated to the advantage of Wall Street.

Over to you

Are we in for a slow recovery?

1929crash1

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201 Responses

  1. Unfortunately young Malcolm seems to be indulging in that sweet childhood pursuit of fondling oneself. There is plenty of blame to go around for the world’s current financial woes. A few Cassandras called the current crisis but were either ignored or pigeonholed as ‘raving lunatics’.

    It is interesting casting an eye over the eclectic group who predicted the current storm. Here are some and remember Google©™® is your friend.

    Pope Benedict
    http://www.theregister.co.uk/2008/11/20/pope_prediction/print.html

    Ron Paul
    http://www.yourtaxsavings.com/economy/80/ron-paul-predicted-the-fanniefreddie-fiasco/

    The Black Swan
    http://www.fooledbyrandomness.com/imbeciles.htm

    Looking back, history has tossed up a few players at head office who might have and should have done more to put measures in place to prevent the financial shambles we now have. But as usual they’ll be allowed to slip off into retirement with a sackful of cash.

  2. Seems to me that MT-vessel Turnbull might be making a pre-emptive strike against his ilk (bankers) being blamed for it. It did start with the many foolhardy decisions of banking and finance “industry” types.

  3. Personally I blame David Bowie

  4. …and the excessive capitalistic free market Robber Barons who caused all this crap…are raking in the dollars hand over fist with Government guarantees left right and centre…and screwing businesses here as they enter the front door – if they get that far…

    ….as cash returns dwindle on the commercial lending market because Rudd & Co provided a gold plated three year AAA guarantee (with taxpayer funds) to The Big Four (DUH!) on overseas loans, the banks are cleaning up internationally as our dollar drops to a figure not seen since 2001 – why are governments so dumb?

    As for Turncoat I think I expressed my opinion of him during the Blogocracy and early blogocrats days when he was seen by some as the Libs saviour…ignorance is bliss, Sir Malcolm – GMAB!

    I laughed at the folk lauding the end of communism and the command system in the USSR as evidence that capitalism rules – still laughing…greed, as always, is alive and well!

    Nothing changes…

    Here we go again?

    ——————————————————–
    I prefer to live in a society, rather than survive in an economy!

  5. “The fundamental error was … lending money to people who can’t afford to pay it back.” Oh really Malcolm? Now who would have thought.

    And this insightfulness is paying dividends as evidenced by Friday’s Morgan Poll.

    Last face to face with Brendan Nelson at the helm 2PP:
    September 6/7 & 13/14, 2008 (Face : Face) 56 44 55.5 44.5

    Most recent face to face:
    January 3/4 & 10/11, 2009 (Face : Face) 61 39 60 40

  6. Turnbull has bitten off more than he can chew and is obviously gagging on jerky that he’s blindly lusted for!

    Now the other faction has the blue boot on and just has to hang it asunder as the bed wetter of Wentworth will surely head butt himself into eventual submission!

    Pass the popcorn.

  7. “The fundamental error was … lending money to people who can’t afford to pay it back….You do that on a large scale, you’ll end up with these problems.”

    What happens if that kind of thinking is applied to yet a larger scale, say globally? Who becomes blameworthy in Malcolm-land for that enlarged, multilateral dynamic of global debt?

  8. Interesting article by Michael Duffy, lenders knew the situation was growing insane well before the collapse. They had to have known. In fact, the whole financial sector knew lending had risen to unsustainable levels way before the cracks started appearing – as should have the authorities – regulation gradually disappeared as the ‘free-market maniacs’ got their way – Turnbull being one of them. How do you think he made his milions?

    Greed is good . . . for a while: the thought behind the subprime crisis

    http://www.smh.com.au/news/opinion/greed-is-good—-for-a-while/2009/01/16/1231608986951.html
    The most interesting conversation I had as a journalist last year was with a man named Richard Bitner. He did more than anyone to help me understand why the world economy has tanked.

    Bitner used to run a subprime mortgage company in Texas, which means he was involved in the origins of our present troubles at ground zero. When a broker would persuade a man in a string singlet on a porch in New Orleans to take out a mortgage for a hundred grand or two, Bitner was the guy who had to sign off on the deal. As the whole world now knows, at some point people in Bitner’s position lost the plot and started giving money to almost anyone, which led to the current economic calamity. But how did it happen? How did people, often good people who cared about what they were doing, end up making such an enormous mess?

    Bitner realised something was up in June 2005, when a loan he had written for a man named Johnny Cutter went bad. Cutter was a good old boy from South Carolina who worked in a gas station. His income was low, his savings record abysmal and he owed money. The only thing in his favour was that he had put together $US5000 for a deposit but only because he and his wife, Patti, had been saving rent by living with her sister for three years. They had been turned down twice in the past when applying for a mortgage, but this time the industry was ready for them.

    “Wall Street’s appetite for [subprime] loans increased at about the same time new subprime lenders entered the market,” Bitner recalled in Confessions Of A Subprime Lender, a book he later wrote about his experiences. If he wanted to stay in business he had to offer the same deals as his competitors or “we’d quickly become an afterthought”. And so he wrote the $US100,000 loan for Johnny Cutter.

    The Cutters did not even start to make their repayments. Patti fell sick a few days after they moved into their dream home and lost her job a few weeks later. The Cutters did not have medical insurance, so that was the financial end for them, and Bitner’s company took back the house.

    When it was over, Bitner sat down to examine the file, wondering why his company had made the loan in the first place. It was, he realised, a foreclosure waiting to happen. But when he went through the paperwork he found the loan fitted the guidelines used by everyone involved. There was nothing manipulative or fraudulent about what had happened. In fact, there was nothing unusual.

    The Cutter experience awoke Bitner to what he was involved in: “For the first time I was seeing this [subprime] product pushed to the extreme, and from a risk standpoint it made no sense at all.”

    The Cutter experience awoke Bitner to what he was involved in: “For the first time I was seeing this [subprime] product pushed to the extreme, and from a risk standpoint it made no sense at all.”

    For a man who had entered the market because he believed it was a good thing to help poorer people buy their own homes, this was a devastating wake-up call. It was also a timely one: Bitner sold his share in the company and walked away from the subprime industry before it imploded.

    When he considers the question today of how it all happened, Bitner says it was, like many disasters, not a sudden thing but a slippery slope.

    Until he formed his company, “my world seemed fairly black and white. I viewed most things as being right or wrong, and seldom was there an in-between. What surprised me about subprime lending was that there were very few absolutes. Lending money to people with bad credit means living in a world of grey.”

    As Bitner says, the greyness extended to Wall Street, which became enthusiastic about the subprime market even though it knew almost nothing about it. This type of ignorance is long-running and was captured marvellously by Michael Lewis, the author of the 1980s Wall Street expose Liar’s Poker. In the December issue of Portfolio magazine (online at http://www.portfolio.com) he recalled how “To this day, the willingness of a Wall Street investment bank to pay me hundreds of thousands of dollars to dispense investment advice to grown-ups remains a mystery to me. I was 24 years old . . . I’d never taken an accounting course, never run a business, never even had savings of my own to manage. I stumbled into a job at Salomon Brothers in 1985 and stumbled out much richer three years later.”

    He left because “I figured the situation was unsustainable. Sooner rather than later someone was going to identify me, along with a lot of people more or less like me, as a fraud. Sooner rather than later there would come a Great Reckoning . . . Not for a moment did I suspect that [this rip-off] would last two full decades longer.”

    But with a few stumbles, it did. He spent those decades waiting for the end of Wall Street, expecting the big investment banks to be discredited. “Yet they just kept on growing, along with the sums of money that they doled out to 26-year-olds to perform tasks of no obvious social utility. The rebellion by American youth against the money culture never happened. Why bother to overturn your parents’ world when you can buy it, slice it up into tranches and sell off the pieces?”

    Now, as we gaze at the scenes of economic devastation, it is still hard to see how it could have happened. Writers such as Bitner and Lewis are providing some clues.”

  9. Finance Brokers make their dough in commissions on loans approved. The more loans they push through, the more they make.

    In such circumstances the incentive to “sweeten-up” loan application forms they help the punters complete must be just-about overwhelming. An exaggeration here, an omission there and Bob’s your uncle. Loan approved, commission paid. And if the punter can’t even make the first mortgage payment, that’s not their concern.

    When coupled with Banks flush with cash and eager to lend, this was a disaster waiting to happen.

    So when Turnbull blames people’s greed, rather than the system, he hasn’t got a clue.

    Greed is the system. And that system operated just exactly the way it was designed to.

  10. Evan, on January 17th, 2009 at 6:00 pm

    And that system operated just exactly the way it was designed to.

    Briliantly described, Evan, it was designed to rob poor people – and keep ’em poor, as usual.

    Governments like poor people they are easier to manipulate…
    ___________________________________
    Prosperity With Integrity!

  11. Evan and TB agreed. Hold your breath for this one.

    Additionally foreign investors (mainly the recipients of US trade dollars i.e. China, India, Brazil etc) also flooded the US markets with dollars. Historically these countries invested heavily in Government Treasury Bonds. Then Wall St investment bankers came up with the new idea of securitising US home mortgages. Foreign investors, like many thought the US housing markets was risk free. The flood of investment dollars pushed interest rates lower and lending became even more aggressive. Regulators threw up their hands and relied on the investment banks to assess the risk. Investment banks allegedly thought foreign investors were able to assess their own risks. Then ratings agencies took their assessment from bankers and in the end, even bankers didn’t understand the risks involved. And tragically, once many mortgages had been bundled the toxic assets spread throughout the system. The sheer complexity of the instruments made it impossible to manage the carnage that followed.

    I should note that our own housing industry and business lending has been supported by foreign investment dollars as has the UK. Hence the reason we’re just as vulnerable. Our levels of personal debt is higher than the US and UK and our savings rates are lower.

    Now if that isn’t a recipe for disaster I don’t know what is.

    Hyman Minsky nailed it when he said in 1986:

    “To be exact leadership does not seem to be aware that the normal functioning of our economy leads to financial trauma and crises, inflation, currency depreciations, unemployment and poverty, in the midst of what could be virtual universal affluence. In short, financially complex capitalism is inherently flawed.

    Over a a protracted period of good times, capitalist economies tend to move from a structure dominated by hedge finance units to a structure in which there is a large weight to units engaged in speculative and Ponzi financing”

    And Ponzi financing has been so widespread that it’ll take years for this whole sorry mess to be sorted out. It’s also been a foundation for excess credit card spending which makes it all the more painful for the economy.

  12. They’re starting to realise that printing more money and reducing interest rates can go only so far. Emphasis has been placed on stimulating the economy and getting cash moving through the system, when the real problem trying to keep businesses and households from being swallowed by their debts.

    US mulls creating government bank to buy toxic assets
    http://www.theaustralian.news.com.au/business/story/0,28124,24924351-36375,00.html

    THE US Government, recognising that the banking crisis is larger than originally thought, is laying the groundwork for a second phase of its rescue attempt with plans to tackle the toxic assets gumming up the system

  13. scaper:

    “Now the other faction has the blue boot on”

    Please explain? And at so many levels For openers try “factions’ and ‘blue boot’?

    Another eggcorn? Not ‘bluchers’ perchance?

    Am totally confused. But seemingly other aren’t. Or is scaper a special case? Just jokin ..

    Once upon a time this site wasn’t into ‘censorship’ of individual posts, despite the apparent lack of judgement by a contributor declaring his wife had a drinking problem. Followed soon after by a post which that contributor asserted he was mixing her a ‘stronger drink. Lol. Irony abounds.

    Then there was a new ‘policy’ (in retrospect) which deleted a certain post by IATW. Then there was the deletion of a whole thread. Talk about whitewashing history and I ssume we would want to criticise the Japansese for doing same at a macro level..

    Always good that the ‘owners’ of a site have conceplual clarity. Lol.

  14. ECONOMIC MELTDOWN FUNNIES (December 2008) is a co-production of Jobs
    with Justice and the Institute for Policy Studies–Program on Inequality and the
    Common Good. Visit us on-line at http://www.economicmeltdownfunnies.org.

  15. As johnmcphilbin notes, the investors relied on the regulators, the regulators relied on the banks, the banks relied on the ratings agencies, who in turn relied on the banks….”

    Hmmm.

    Reminds me of the old Three Stooges skit, where Larry, Moe and Curly are tasked with the job of getting the neighbour’s piano down the stairs in their tenement building.

    Curly: “I dunno, Moe, ya think this’ll work?”

    Moe: ‘Don’t ask me knucklehead. Ask Larry”

    Larry: “Why ask me? It was your idea, Moe”

    Moe: “Well, of course it was my idea, how hard can it be? I’m just relying on you two to do it right. Now get moving.”

    Two minutes later the three of them are lying under a smashed piano at the bottom of the stairs.

    Scene ends with Curly saying: “Well, at least we got it down the stairs”, just before Moe slaps him.

  16. Well the comment by Turnbull is anything but simplistic, it is a well known fact that appears many here are also conveniently ignoring, what say you John ?

    “Barney Frank in the House and Chris Dodd in the Senate along with Henry Cisneros, the top housing official in the Bill Clinton administration during the 1990s, pushed for loosened mortgage lending restrictions so first-time home buyers could qualify for loans they could never get before. The goal of the Democrats was to boost home ownership in the United States.”

    “Reacting to these and other more significant policy changes, lenders such as Countrywide Financial in California set up units to service these so-called borrowers. When it went under, Countrywide had $170-billion in mortgage assets, most of them subprime. It was encouraged in this activity by the Clinton Administration, Barney Frank and Chris Dodd. In fact, Clinton’s HUD director Henry Cisneros served on Countrywide’s board until it was acquired by Bank of America, and Chris Dodd and members of Fannie Mae and Freddie Mac executive corps received below-market special mortgage loans from Countrywide.”
    “The idea that the mortgage collapse is the product of unscrupulous agents and lenders roaming the country in a deregulated market searching for ignorant buyers is overwhelmed by the facts. Deliberate government policies were enacted to destroy mortgage lending standards and socialize risk.”

    http://knowledge.wpcarey.asu.edu/article.cfm?articleid=1694

  17. Here we go, the it’s all the government’s fault mantra. Bit by bit the free marketeers are increasing this mantra as they attempt to shift the blame away from their own failures and that of unbridled business greed onto the easiest target, the government.

    The mortgage and financial crisis now sweeping the world is the result of unintended consequences brought on by government policy and regulation. What we are witnessing today is a growing pyramid of government failures. It is not a failure of free markets; it is a failure to have free markets. Solving the problem by enlarging government’s role in the economy is the road to socialism, not the road to salvation.

    I can guarantee you one thing and I think Mac will back me up, if we go down the route William Boyes’s appears to be recommending then there lies an even worse outcome.

    Here is a sensible reply to William Boyes’s article.

    The core of the problem doesn’t lie with government influence on the market. An “affordable” mortgage is not necessarily a subprime mortgage. Throughout the 1990s, commercial banks were required to offer affordable mortgages to conform to the CRA. However, the bank regulators also expected those affordable mortgages to be prudently underwritten. These programs may have featured special terms, lower down payments, and non-conventional credit references, but income was verified, credit was considered, and they had to be a primary residence. This debacle, at is core, lied with non-commercial bank lenders, often investment banks, which originated and sold mortgages, were richly rewarded up front, and retained no risk. The effect of all reward and no risk was the erosion and eventual disregard of credit standards. In a healthy market, there is a rational relationship between risk and reward. Disrupt that relationship and bubbles will form and inevitably break. Greed, not high-minded but misguided government mandates, shaped the scope of this disaster.

    …and this;

    Conservative Scapegoating
    All this article does is blame bad business decisions on the government. Government did not mandate lending to subprime borrowers, excess leveraging of investment banks and hedge funds, and unregulated risk management instruments.

    This article also ignores the integral role that a massive influx of foreign dollars, financing our trade deficit, played in the housing bubble.

    Read the comments, there are some good rebuttals to Boyes there.

  18. “All this article does is blame bad business decisions on the government. Government did not mandate lending to subprime borrowers”

    Umm…….Yes it did, kind of the point the poster completely misses and apparently so did you…..Try reading the article next time chief. Especially the part about the legislation put in place under Carter and then reenforced by Clinton in the 90’s.

  19. I think it is the article, and you that miss the point Sparta. To completely blame the regulations and the regulator for the lenders and businesses for not being prudent is disingenuous.

    It is not unreasonable to expect financial institutions and businesses to do the right thing if legislation is enacted to help those less well off. That they allowed overwhelming greed to rule their reason and began constructing extremely complex products that had borrowings on borrowings on borrowings was a route cause, not government regulation.

    If Boyes and the other deregulators had their way then the world would become swamped in these type of complex financial packages, and the next crash would make this one look like a losing Monopoly game.

    What would be the excuse then Sparta, if the system is completely deregulated but a huge financial crisis still occurs?

    Let’s not forget financial crashes happened prior to the legislation Boyes is blaming, but I guess he would say they were also the fault of other prior government regulation.

  20. Another misconception Sparta. The Community Reinvestment Act (to which I presume that you are alluding), controlled some of the most solid loans of the period, and had less defaults than those not covered by the government legislation. It was greed, and nothing else, that caused this. Greed, let to run rampant by governments who incouraged it.

    The Community Reinvestment Act, passed in 1977, requires banks to lend in the low-income neighborhoods where they take deposits. Just the idea that a lending crisis created from 2004 to 2007 was caused by a 1977 law is silly. But it’s even more ridiculous when you consider that most subprime loans were made by firms that aren’t subject to the CRA. University of Michigan law professor Michael Barr testified back in February before the House Committee on Financial Services that 50% of subprime loans were made by mortgage service companies not subject comprehensive federal supervision and another 30% were made by affiliates of banks or thrifts which are not subject to routine supervision or examinations.

    Community Reinvestment Act had nothing to do with subprime crisis

    Remeber lil johnny telling us to keep borrowing cos we were ‘so affluent’. They are the ones to blame, as their whole appraoch rested on driving consumerism with debt.

    “That’s the bitchin’ part about it! It don’t matter! If you can’t afford it,, *&^cking finance it (Judge Reinhold, Ruthless People)

  21. Nature 5…I see another late night attack, as usual!

    Gee, it is obvious to anyone with half a brain that there is only two factions in the power struggle that has been played out since the last election…if you don’t see that then it says it all…LOL!!!

    I have been in regular contact with certain ministers and the opposition regarding GSC and they are showing interest…that must burn you up!

    And before you go off on the Tennant Creek crap that won’t happen for at least fifteen years down the track as the railway from Moree to Gladstone will be the priority then the connection to Tennant Creek via Mount Isa.

    ATEC has been granted the Unconditional Exclusive Mandate and construction could commence in as little as two years time…but you would know that, eh???

    I had a good chuckle a while back as you see yourself as some type of expert on blogging…HUH!

    I’ve never seen you on any of the other blogs out there…another thing…I know you are ABBA and by changing your screen name and trying to reinvent yourself is a pretty deceitful act in my opinion, actually gutless but that is expected of a person of dubious character!

    This is the last time I will respond to you ABBA as I don’t want any part of your ‘social experiment’ and your attacks won’t bother me as they are pathetic!!!

  22. Yiiikes!!!

  23. Are we as a people still so bereft of intellect that we must continue to view everything in terms of absolutes? Must everything be black or white? There are a lot of parallels between this argument and the one regarding Palestine. Who is at fault? Left wing governments or Capitalists? Israelies or Palestinians? It’s both.
    If Capitalists keep ripping off the poor, governments will legislate to ensure a minimum standard of living for the poor. If the government legislate to restrict profit yet increase business risk, capitalists will find a way to make it profitable whilst shifting the business risk back to the poor.

    If Israelies keep starving and beating up on Palestinians, Palestinians will fire rockets over the border. If Palestinians fire rockets over the border, Israelies will continue beating up on Palestinians and restricting food supplies.

    It really is amazing that with all of the human development that has gone on over the centuries, we remain for the most part incapable of seeing both sides of an argument, and that makes us unable to develop genuine solutions. And when I say “we” I mean “we” because I am all too frequently guilty of the same thing.

  24. I thought we were debating the GFC and its history, causes and solutions?

  25. James of North Melbourne, on January 18th, 2009 at 11:23 am

    Frightening, really, isn’t it, James? Agree with your sentiments (as I’m sure you have already guessed, with some of my past comments)…

    …what’s the benefit in making so much money that you have more than you will ever need and just make so many other people so unhappy doing it…can’t take it with you…

    … and I can assure life is very short (astoundingly so the older you get)…

  26. Well said Tom and true. Mea culpa.

  27. Damn, damn, damn. I meant James not Tom. Trying to blog four different sites at once and screwed up.

    Sorry James.

  28. Adrian & Tom,

    Of course greed is a component of this thing, I never said it wasn’t? However, so is the stupidity of those who took on such loans? Millions more had enough sense to add up the numbers and see they would be short at the end of the month?

    Tom,

    Fannie and Freddie were buying up large numbers of these risky loans from “independent” entities! How long do you think the “independent” entities would have stayed in business if somebody wasn’t taking these loans off their hands? It is a convenient part of the story your writer avoids mentioning. The foreign buy up is also a large part of this.

    “Not all funding came via government and regulatory overreach. Hundreds of billions were raised through new mortgage-based securities and other risk-distribution vehicles by private players, as these mortgages, issued under no lending standards, were packaged and then sold as AAA-rated securities. AAA rating? Who gave them this sterling rating? Essentially the government did.”

    “It is not unreasonable to expect financial institutions and businesses to do the right thing if legislation is enacted to help those less well off.”

    Yes, like mandating loans to those “less well off” who normally wouldn’t qualify for them? Surely you understand that as you admit as much? No proof of income loans, are you kidding me? I agree with you on the “deregulate” everything crowed however. Did you guys even read the article? His assertions can be found easily enough if you’re willing to look?
    It boils down to looking at the “root of the cause” not the minutia that compounded the scenario!!!!!!!!

    http://query.nytimes.com/gst/fullpage.html?res=9C0DE7DB153EF933A0575AC0A96F958260

  29. Sparta just a thought but did low doc loans become the substitute/the easy option rather than providing low cost public housing. That is, the debt burden was placed on the people rather than on governments. And this goes for Australia as well.

  30. Min

    “That is, the debt burden was placed on the people rather than on governments. And this goes for Australia as well.”

    Excellent point Min, take what Mark Davis wrote back on Blogocracy:

    “The recent collapses are catastrophic instances of market failure. But as I think has been obvious to your average person on the street for quite some time now, markets have been failing everywhere. The free-market approach of the past thirty years, seeded by economists such as Hayek and Friedman, pioneered as policy by politicians such as Thatcher and Reagan, has turned out a bit of a dud. In Australia cutbacks in health and education, the withdrawal of government dental support, the shift in emphasis from government provision of housing for the poor to private investor provision, even the abolition of legal aid, have all lead to market failure.

    Nor did the decades of reform produce what they advertised. Australia’s ‘age of prosperity’, as Peter Costello calls it in his memoirs, has been underwritten by the mining boom (even as manufactured exports stagnated during his tenure) and massive increases in household debt (now more than $1 trillion — about the same as the annual national output), even as the government has wound down its own debt. The national debt has in effect been privatised while, at the same time, risk has been shifted away from government and business onto the shoulders of ordinary people, in the shape of long working hours, casualisation, and the sort of uncertainty that is written in the fact that Australians take the least holidays of any western nation.

    So much for the magic of markets. “

  31. Ouch! And the failures keep rolling in, and here’s why I keep referring to the possibility of a long and painful slump and slow recovery:

    “New US economic data raised the possibility of deflation. The pace of US inflation slowed to a half-century low last year and industrial output fell for the first time since 2002.

    The reports suggested the economy could take longer to pull out of a downturn that is on track to be the longest and possibly deepest since World War Two.”

    Citi, Bank of America woes worsen
    January 17, 2009
    http://business.smh.com.au/business/world-business/citi-bank-of-america-woes-worsen-20090117-7jbx.html?page=-1
    Two of the biggest US banks reported multibillion-dollar losses on Friday hours after the US government unveiled $US20 billion ($30 billion) of additional aid for Bank of America in the latest toll of a raging credit crisis.

    Bank of America posted its first quarterly loss in 17 years on the heels of the government’s midnight announcement that it would help the largest US bank absorb its purchase on Jan. 1 of troubled brokerage Merrill Lynch & Co.

    The US Treasury will provide the new aid in exchange for preferred stock, and along with the Federal Reserve and Federal Deposit Insurance Corp, agreed to protect Bank of America from possible losses on almost $US100 billion of assets.

    Also scrambling to survive huge new losses triggered by the credit crunch was No. 3 US bank Citigroup Inc, which unveiled plans to split in two and shed troubled assets.

    The announcements came before a long holiday weekend that ends on Tuesday when President-elect Barack Obama will be sworn in. Obama again said that even with a wide range of measures to pull the United States out of recession, the US economy will likely worsen before it improves.

    Treasury Secretary Henry Paulson, on his last full day in office, said a substantial portion of the second half of the government’s $US700 billion financial rescue fund should be reserved for bank capital programs.

    Aid for automakers

    The Treasury said it will lend Chrysler LLC’s finance arm $US1.5 billion to help it make new car loans as part of a broader program to revive the US auto industry.

    The Treasury earlier extended a $US4 billion loan to Chrysler for its automotive operations and had granted $US13.4 billion in operating loans to General Motors Corp.

    Shares in Bank of America and Citigroup rose in early trade after tumbling sharply on Thursday, as investors believe the government will not let the two banks fail.

    But the size of the losses and need for fresh aid unsettled Wall Street. The two banks’ stocks fell and pulled down shares of their two large rivals, JPMorgan Chase & Co. and Wells Fargo & Co.

    “Coming into 2009, we thought we had the big bailouts past us as far as the financials are concerned,” said Matt McCall, president of Penn Financial Group in Ridgewood, New Jersey.

    “Now it’s clear that there could be more big banks coming back to the well, asking the government for money,” he said. “And when does this end and when do they say no? They just keep writing checks.”

    Barclays fears

    Fear of more bank losses spread to London, where shares in Barclays fell 25% and other bank stocks tumbled as worries about capital and write-downs resurfaced. Dealers said there was no single reason for their sharp slide.

    After the market closed, Barclays reported it expects to report pre-tax year profit well ahead of analysts’ estimates of 5.3 billion pounds ($12 billion), and said it knows of no justification for the stock slide.

    The Bank of England and Downing Street confirmed a meeting took place among Prime Minister Gordon Brown, the Bank of England governor, finance minister and securities regulator, but neither would comment on the talks.

    British ministers aim to announce yet another bank lending package, a Treasury source told Reuters, while Ireland nationalized Anglo Irish Bank, its third-largest lender, to avoid a collapse.

    BofA, Citi post huge losses

    Citigroup, formerly the largest US bank, reported a fourth-quarter loss of $US8.29 billion and recorded $US28.3 billion of write-downs and credit losses. Over the past 15 months Citigroup has amassed an astounding $US92 billion in losses.

    Merrill Lynch posted a record $US15.31 billion loss in the fourth quarter, while Bank of America reported a $US1.79 billion loss for the quarter.

    “It is difficult to focus on what is going right at this time,” said Kenneth Lewis, Bank of America’s chief executive.

    Lewis sought help after it became clear Merrill’s credit losses were far higher than expected, having threatened last month to scrap the $US19.4 billion takeover without aid.

    The news of massive new losses and more aid came after the US Senate on Thursday cleared the release of the remaining $US350 billion of emergency funds to tackle the crisis. The Bank of America aid will come from the first $US350 billion package.

    Woes widen

    With economies and credit markets worldwide yet to respond to massive bailouts and deep interest rate cuts, Bank of Japan Governor Masaaki Shirakawa said financial conditions in the world’s second-biggest economy were tightening rapidly.

    Conditions in France were also on the slide. The Bank of France estimated the French economy contracted sharply in the fourth quarter and its monthly survey of business managers showed they expect the downturn to deepen.

    The euro zone trade balance swung from a surplus to a deficit in November as exports plunged twice as much as imports, data showed, underlining the fast pace at which the region’s economy was sliding deeper into recession.

    New US economic data raised the possibility of deflation. The pace of US inflation slowed to a half-century low last year and industrial output fell for the first time since 2002.

    The reports suggested the economy could take longer to pull out of a downturn that is on track to be the longest and possibly deepest since World War Two.

    “Deflation is just around the corner,” said Meny Grauman, an economist at CIBC World Markets in Toronto.

    “With the US economy roughly one full year into a deep recession, the prospect of deflation is a concern for another time, especially on a day when the US government has decided to inject billions more into the US banking system.”

  32. Sparta

    I am not saying that governments are not partially responsible, from either side of the fence, but it is when the governments have eased loaning practices, (and they have been eased continuously over the last 20 years) that problems arise. The practice of expanding mortgage loans among low and moderate income people did not cause this, it was doing this without proper oversight, and, from the evidence, those institutuins that adhered to policy did not have large defaults, it was when they went outside of the framework, made posible by loose regulation, that this happened.

    So, allowing the ‘free market’ to become freer actually is the root cause of this problem.

    The free market, as a concept, is probably the most viable, but, due to the ‘greed’ factor, it requires oversight, and, as such, is not longer ‘free’.

    But trying to blame it on Clinton is simplistic, it has been a chorus of bad policy decisions, and those bad policies are the loosening of oversight, not making loans available to poorer people.

    Yes, blame the governments if you like, but doing so proves that totally free markets do not work, as they have been responsible freeing them.

  33. Only recently many economist were saying they believed the worst is over. I beg to differ. There are so much toxic assets in the banking system globally it’s hard to determine just how deep and wide this may go yet. It seems as the the entire system is a house of cards built on shifting sands.

    Banks ‘face billions more in losses’
    http://www.news.com.au/dailytelegraph/story/0,22049,24927817-5014099,00.html

    GERMAN banks face further losses running into the billions of euros as only a quarter of their toxic assets have been written off.

    Germany’s respected Der Spiegel weekly based its report on a survey of 20 banking institutions carried out by Germany’s central bank, the Bundesbank, and the financial market watchdog Bafin.

    The survey revealed that German banks possess 300 billion euros ($A592 billion) in toxic assets and have so far only written off the most rotten, which represent a quarter of the total, the report said.

    “The remainder is still registered in accounts at illusory values,” said Der Spiegel.

    According to the magazine, government economic experts believe the remaining write-downs are considerable and could lead to “very heavy new losses for the banks”.

    The finance ministry estimates the volume of assets at risk in the German banking sector to be in the region of one trillion euros ($A1.97 trillion) , Der Spiegel said.

    “In the worst case scenario, it could run to more than double the federal debt,” an aide to Finance Minister Peer Steinbrueck told the magazine on condition of anonymity.

  34. Min,

    There is a school of thought out there that believes “people” are always victims of circumstance and their fates are always the making of “others” (some always blame the rich, corporations etcetera). Then there are those that believe people, will do what is in their own best interest regardless and sometimes it leads to negative circumstances of their own making (fundamental capitalism is driven by the wants of people). Yes, in other words, the risk was passed on to the entity known as the “tax-payer” and who pays most of the taxes? The “rich” many are bitching about and the middle class. 40% of Americans pay NO Taxes what so ever so you do the math (120 million). It was a naive belief in people and idea that anybody can attain success if put on par with those better off, even if it is without having to work for it. Working for it includes the lessons learned from our past failures.

    The simple fact is, we all have faults and many of the 40% that these loans were meant to benefit don’t simply find themselves in the circumstances they do because of “bad luck”. What do people expect when we went as far as making loans to “non-citizen’s” many “illegal aliens”? When things got tough, they simply packed up and moved on. The reality that at the root of this is greed is true enough but what of the greed of those who wanted a home they knew they couldn’t afford!

    Now one of the biggest culprits at the root of this mess, Barney Frank, is demanding taxpayers bail out these bad mortgages as well. In essence, buy these folks homes now that they have proven what their credit scores already predicted and legislation demanded we overlook (public housing as you say)! Yes, the banks and politicians saw the chance to make a buck and looked the other way. But at the heart of this is the legislation that made it possible. A person exploiting the loopholes is hardly a “market failure”! The homeowner did, the banks did, the hedge-fund managers etcetera…..How do you label this a failure of the free markets when the model requires “regulation” that was in essence legislated out or at the very least made ambiguous?

  35. Tom,

    “In July, the Department of Housing and Urban Development proposed that by the year 2001, 50 percent of Fannie Mae’s and Freddie Mac’s portfolio be made up of loans to low and moderate-income borrowers. Last year, 44 percent of the loans Fannie Mae purchased were from these groups.”

    “The change in policy also comes at the same time that HUD is investigating allegations of racial discrimination in the automated underwriting systems used by Fannie Mae and Freddie Mac to determine the credit-worthiness of credit applicants.”

    Read slowly……..The deregulation you mention is in the legislation!!!!!!!!!!! “Credit Worthiness”, must I spell this out?

    http://query.nytimes.com/gst/fullpage.html?res=9C0DE7DB153EF933A0575AC0A96F958260

    Simplistic, yes to keep ignoring the facts!

  36. Sparta Phoenix, AZ USA, on January 18th, 2009 at 2:14 pm
    The homeowner did, the banks did, the hedge-fund managers etcetera…..How do you label this a failure of the free markets when the model requires “regulation” that was in essence legislated out or at the very least made ambiguous?

    I would have thought that those with more knowledge and skill than “the homeowners” would have advised the “applicants” more ethically, responsibly and professionally…instead they chose fraud, deceit, manipulation and cheating…

    …what a wonderful system…

    …how hard is this?…I’m so sorry to inform you that, based upon the information you have given us (and we checked out!), you simply cannot afford to repay this amount of money on your present income…

    …not everyone I know has the budget skills, research capability, planning experience, record keeping background etc etc that I and The Minister have (can’t speak for anyone else) – they are not all simple skills/knowledge to acquire for many people …

    …taking advantage of “poor/naive people” with limited resources, to make money, is quite simply wrong and and certainly unprofessional…anywhere in the world…

    …for many in the West this year, its going to be as painful as those suffering conflict in the ME…

    …the Bush Administration put profits and themselves ahead of anything else during the last 8 years…

    …and we’ll all pay for it..!

    …what annoys the crap out of me is that I can’t vote in the USA but it has had such a negative influence on my life and lifestyle..!

    …at least Clinton was just trying to put roofs over the heads of US citizens…

    …if the law was so full of friggin’ holes why didn’t Bush & The Rustlers change it? – no an$wer required…

  37. Thank you to John McP and to Sparta. Very excellent points made…and very technical for this little black and white duck.

    With apologies to Sparta I am tending to go with John McP.

    But on the other hand, certainly the home buyers do have some responsibility in this matter – but on the other hand they were convinced that the boom would never end and with astronomical rental costs, well buying is better than renting because if one buys a house even with no deposit one can only go up and up and up…and if one has to sell then if we buy for $350g we can sell it for $450gs. And all went well for a number of years…………

    I

  38. Given it’s a global problem (which involves all kinds of national and transnational mixed economic approaches and regulatory mechanisms), does anyone know how the Bretton Woods II, Part 2 of the G20 (and bugger the rest, because we’re the biggest and most falling apart economies) is going?

    On another track, one wonders how large debtor economies are going with their borrowings programs now that Malcolm has declared that continued lending to those who cannot afford to (re-)pay IS the problem. I’m with Malcolm and say: just cut ’em off and leave ’em homeless/creditless. 😉

    And none of this original Bretton Woods stuff rammed home by that pesky Mr White who assumed that the world’s biggest and bestest creditor nation would continue its AAA creditworthy status and economic hegemony ad infinitum as against Mr Keynes who foresaw, similar to Minsky’s inestimable foresight, that ‘the system’ contained within it the seeds of its own destruction and wanted regulatory counter-balances and stabilisers for the big economic flywheel that could only ever spin one way and forever stably, like an economic perpetual motion machine, according to Mr White.

    But myeh, back to Malcolm and the accretive ‘shock’ trigger which caused the perfect, but perfectly compromised, flywheel to become terminally unbalanced, with centripetal forces and stored energy/value having the thing shred itself to bits, starting with those tenuous fictional capital bits added to the periphery last operating as shrapnel as the thing works its way, Warren Buffet WMD-style, inwards to the spindle real economy core.

  39. Hi Sparta

    I did read it, and, as I mentioned in my comments

    “and those bad policies are the loosening of oversight”

    There is a lot at fault here, governments included.

    But I think the main lesson we can learn from this is that greed is alive and well, and it is going to require government intervention to curb that in the future.

    free markets are not wrong, but I think that unrestrained free markets are.

    And in the case of Fannie May, the loans with government oversight are not where the problem lies, and they were fullfilling their quota of subprime loans through this. It is when they stepped out of these regulations, and into their own ‘pilot program’ that things went astray.

    Basically, they got greedy.

  40. Legion

    “And none of this original Bretton Woods stuff rammed home by that pesky Mr White who assumed that the world’s biggest and bestest creditor nation would continue its AAA creditworthy status and economic hegemony ad infinitum as against Mr Keynes who foresaw, similar to Minsky’s inestimable foresight, that ‘the system’ contained within it the seeds of its own destruction and wanted regulatory counter-balances and stabilisers for the big economic flywheel that could only ever spin one way and forever stably, like an economic perpetual motion machine, according to Mr White.”

    Absolutely brilliant observation.

  41. Tom R, on January 18th, 2009 at 4:40 pm

    Problem is, Tom R, I reckon the governments have been hi-jacked by the very people that need to be regulated – control the government and you control all avenues of money.

    Why on earth would you prop up all the banks for three years (ie Rudd&Co) with no expected return/guarantees and piddly costs that most of us would laugh at given the possible (actual at the moment) market returns…

    The perpetrators both here and in the USA particularly are being REWARDED for failure…

    …ask any other business (particularly small to medium) what happens if you make mistakes in the market…

    …hand outs from the government – not a chance…

    …straight down the tube – next, please…

    …in 16 years running a small business all the Feds and State government did for me was make fools of themselves and slow my productivity…

    We have too much faith in government – they need an overhaul too – problem is how?

    ……………………………………
    Prosperity With Integrity? Perhaps?

  42. TB, the lesson that is being rammed home here is exactly that:
    Prosperity With Integrity? Perhaps?

  43. TB Queensland, on January 18th, 2009 at 5:22 pm

    Crony capitalism masquerading as ‘socialism’? Regulatory agency capture? The neat co-option of government by lop-sided capitalism? Say it ain’t so, Joe.

    I was going to mention to Evan, earlier, that it’s more like one stooge with MPD and a mess of name badges trotting from bank, to regulatory agency, to de facto part of government. It’d almost be a comedy skit if it wasn’t so serious.

  44. I agree there to an extent TB, but then, what would you have the governments do. Sure, let the banks fail, like they should, but then what would happen.

    The way things are, we rely on the banks for our way of life. If they fell, it would be chaos. Perhaps, in the long run, this would be good, but the pain in the interim would be intense.

    I actually think we don’t have enough faith in government. Perhaps faith is not the right word, we need a government that does more for us, not less.

  45. Tom R,

    “I actually think we don’t have enough faith in government. Perhaps faith is not the right word, we need a government that does more for us, not less.”

    Agree! Two quotes for Saul:

    “The most powerful force possessed by the individual citizen is her own government. … Government is the only organized mechanism that makes possible that level of shared disinterest known as the public good. — John Ralston Saul The Unconscious Civilization ”

    And

    “People become so obsessed by hating government that they forget it is meant to be their government and is the only powerful public force that have purchase on”

    Like cutting off one’s nose to spite one’s face.

    BTW don’t think that the neo-liberal ideology began with Howard. It was the ‘common sense’ adopted by western Governments (particularly Treasury Departments) decades ago.

    http://www.corpwatch.org/article.php?id=376

    There are 5 aspects that stand out:

    1. THE RULE OF THE MARKET.

    2. CUTTING PUBLIC EXPENDITURE FOR SOCIAL SERVICES

    3, DEREGULATION.

    4. PRIVATIZATION.

    5. ELIMINATING THE CONCEPT OF “THE PUBLIC GOOD” or “COMMUNITY”

    All explained in the link.

  46. Problem is N5 we DON”T OWN the government the Robber Barons have ALWAYS owned – history just keeps rumbling on (or is that tumbrilling.. 😉 )

    Its just that their control is tightening…

  47. TB, let’s not confuse the behaviours of particular governments with the broad concept of government.

    In a democracy, it’s the people who vote who determine who shall ‘rule’ and in theory, at least, ‘how’ they should rule. Why they vote as they do and who causes them to so do is problematic but beyond this discussion.

    The democratic theory is still valid and in the age of instant communications can be undoubtedly improved. The technology is there but the will is lacking. And the evidence is that too many people don’t have belief in government. They hate the only power they have, It’s that vicious circle of cynicism that allows governments to get away with doing the bidding of the few rather than the many.

    Most people who are elected want to do ‘good’ or ‘right’ things at least in their initial stages. But when they enter as a ‘backbencher’ they really have no understanding of how governments work. They become captives of the existing ‘common sense’.

    Hawke and Keating became willing captives of neoliberalism because they believed is was the ‘correct’, ‘right’ or indeed the best or only way for governments to behave. And make no mistake Rudd under Goss followed the neo-liberal common sense for years.

    As I write, Obama is speaking about ‘change’. Hopefully there will be some significant change but remember ‘common sense’ evolves slowly.

    BTW, what was once called ‘political correct’ years ago is now regarded as mainstream. Once upon a time female suffrage and those who advocated same were radicals and at the time was a clear example of being ‘politically correct’. Lol.

  48. “As I write, Obama is speaking about ‘change’. Hopefully there will be some significant change but remember ‘common sense’ evolves slowly. ”

    I seriously doubt it. Have you perused some of his/Billary’s statements regarding their (virtual status quo) handling of the Palestinian question?
    The US is an institution & will not readily change, I think genuine change at the top there would absolutely require massive social revolution.

  49. Just heard Biden’s speech on the train journey. He followed Obama.

    Biden said, “We will bring change to America, that I will promise you, there will be change.”

  50. Toiletboss,

    Yes I have been disappointed about some of Obama’s comments. His comment about his daughters’ being bombed while they slept and how he would react were just too simplistic. He might have added that he would want to know why people would want to do such things.

    I suspect (but don’t know) that the average punter in the US sees Israel as ‘good’ and the Arabs in Gaza as ‘bad’. Like all aspects of ‘common sense’ that will take time to change, even if there is a will.

  51. If the will exists at all it is but a gob of sputum in the wind.

  52. Gee scaper, I didn’t notice you sitting over there in the corner but then again maybe for scaper the person that’s the norm. Or at least that’s how it appears. Lol.

    So tonight’s ‘attack’ (to use words that you seem attached to) is nothing to do with ‘scaper’ the person. only the ideas and arguments presented. As the Yanks are fond of saying – understand that ‘mac’?

    You say:

    “ATEC has been granted the Unconditional Exclusive Mandate and construction could commence in as little as two years time…but you would know that, eh???”

    Actually I didn’t but it caused me to do some research and I find that ATEC is chaired by Everard Compton and I do know something ahout Everard. He’s been around for ‘ever’. He was a great mate of the Rodent.

    “John Howard and Everald Compton often meet around election time. Over the years it has been in Howard’s interest to have a cup of tea or a quiet scotch with the Queensland businessman”

    But he was more than a mate.

    “Howard accepted, asking him to raise funds in 15 marginal rural electorates. The Coalition won 14 of them and Howard was swept to power”

    So we know where his politics lie. Were you aware of that? Not that it matters.

    http://www.smh.com.au/news/National/Sleeper-awakes/2005/04/01/1112302234124.html

    Then there’s the promises Everard made over the years.

    “In April 1997 Compton called the Herald, among many others, to reveal details of a visionary plan to build a privately funded $10 billion inland railway from Melbourne to Darwin.”

    1997, more than a decade ago. Lol. And what did he promise?

    “The trains, capable of travelling at up to 300kmh, would run from Melbourne via the Riverina, the midwest of NSW, the Darling Downs, mineral fields and grazing regions of central and north-west Queensland to Darwin via Katherine. Produce could then be shipped north using fast catamaran ferries

    Trains running at speeds of up to 300 kmh. Now that’s visionary? Others may call it delusional but who knows? But wait:

    “the idea was Compton’s hope that it could be running by 2003.”

    To the best of my knowledge that didn’t happen. Speeds of 300 kmh. The cattle would be in for the ride of their lives. As for us who drive 4 wheel drives, rail crossings would take on new meanings.

    And then:

    “And that’s where we stumble over the Adelaide-Darwin railway – a white elephant to many but one which Compton refuses to criticise: “I see the Adelaide to Darwin line as a flagship of regeneration. This country has had such an appalling record of infrastructure building that at least something was built. It’s the first of many things we have to do for the future.”

    What do we know about the Adelaide to Darwin railway?

    “In an address to a conference in Mount Isa today, Mr Compton will announce he has put a proposal to the receivers and administrators of FreightLink, owners and operators of the Adelaide-Darwin railway, to begin merger negotiations immediately.

    FreightLink went into voluntary administration early this month, with creditors owed $500million. ”

    It’s broke! Always was an election stunt pulled by the Howard government in a desperate (and failed) attempt to save a Liberal State Government.

    While I could provide any number of links, to dear Everard, his political connections and delusions, I concede he has some good ideas. For example, rail freight is ro be preferred over road transport. But the truth is that Everard has been off with the fairies for years. I would hope not too many would join him. But if that’s what floats your boat, Lol.

  53. How low can the markets go? It’s anyone’s guess. The destruction of perceived wealth is mind-blowing. Underestimating risk had become an art form.

    The key words here are ‘widespread defaults’

    Credit markets suggest shares can fall even further

    David Uren, Economics correspondent
    http://www.theaustralian.news.com.au/business/story/0,28124,24928827-643,00.html

    Credit analysts believe equities markets are underestimating the risk of widespread default. Moreover, equity markets cannot stage a recovery until financial markets resume normal functioning.

  54. Nature5, thats the first attack/defence against scapper i have respected from you. there was nothing about family mentioned just debate. in my own opinion thank you for that.

  55. Tom,

    “free markets are not wrong, but I think that unrestrained free markets are.”

    I could not agree more. Very much an oxy to have “unrestrained free markets”, wouldn’t you say?

  56. Min,

    No worries. But notice John likes to avoid addressing the basic premise of my argument with more “jargon”. Just like many of the unscrupulous lenders. He knows where I am coming from and the validity of my argument but again, we all need a boogey man. Why not blame entities we cannot directly tie to this?

    Just seems dense to go after those who were “acting in their own best interests” then address the enviornment that allowed them to do so. The legislation put in place by the pieces I mentioned. To be honest, the Republicans did nothing to curb it either, they wanted to wet their beaks as well so they made feable attempts to come across as concerned. However, this whole thing started and took off under the legislation. It is not some conspiracy theory, just an annoying fact the politicians are hoping will go away, like John. No wonder they all came together so quickly to go after Wall Street? Those nasty CEO’s, how dare they use our legislation to make themselves rich!

  57. Min,

    Here is a simple question? If it wasn’t the conditions created by the legislation then why do you suppose Wall Street waited until after the Clinton additions to decide to start pushing loans with no money down, no proof of employment and offering them to folks with poor credit or none at all? The government in turn certified or agreed to accept the risk of these loans under the guise of Fannie who bought them or took the risk off the hands of the banks. Take a look at the links I provided. The NYTimes is hardly a bastion of “right-wing” propaganda. 50% of their portfolio, which is enormous, was required to carry “sub-prime” like loans!!!!!! It was a disaster waiting to happen, all in the name of “redistribution”.

  58. Now I’m confused. How can it be a free market if it’s restrained? By any definition of free, if it has a restraint of leash on it then it’s not free.

    ————————
    The disaster was waiting to happen before the Clinton legislation and crashes along with bailouts had happened before that.

    This is scapegoating by the free marketeers who are now using the crisis to have less regulations put on them, and they were getting some traction.

  59. According to Access Economics – The Australian Economy is BUGGERED – is that a technical financial term?

    http://www.news.com.au/business/story/0,27753,24930433-462,00.html

    N5 – common sense aint so common! (Mark Twain – from memory) 😉

  60. TB

    Finally, we can rest our case.

    “This is not just a recession. It will be the sharpest deceleration Australia’s economy has ever seen,” said a director at Access Economics, Chris Richardson.

    http://www.smh.com.au/news/national/nsw-in-recession/2009/01/18/1232213448316.html

  61. TB that’s why when we we talk about ‘common sense’ it’s best to use the inverted commas. Each individual constructs their own reality within a social framework.

    Albert Einstein supposed said – common sense is the collection of prejudices acquired by age eighteen.
    .
    Voltaire and many, many others had something to say about ‘common sense’ so I am not surprised that Mark Twain also had some comments along those lines.

  62. And we will all go down together

    State ‘in reverse and sinking’
    http://www.theaustralian.news.com.au/story/0,25197,24929831-2702,00.html

    THE NSW economy is already in recession, shrinking at speeds seen during the US financial meltdown.

    Access Economics’ latest quarterly Business Outlook report has predicted a long and painful year for the country’s biggest state economy, and warned that NSW’s mini-budget had only made things worse.

    “NSW is drowning, not waving, with its economy contracting at US-style rates,” it says.

    The report predicts gross state product will shift into reverse this financial year, dramatically underperforming the nation by contracting 1.6 per cent.

    By comparison, the national economy is projected to grow by 0.8 per cent the same year.

  63. Adrian,

    “How can it be a free market if it’s restrained? ”

    I suggest you use that insatiable appetite to read you claim to have and revisit Adam Smith’s Wealth of Nations. It is government’s role in a capitalistic society to safeguard the consumer via the most basic of regulation possible without interfering in order to keep the greed under control. That is in theory the only role it should play. The “basics” were in essence removed when government legislation “required” we look past these safeguards; like credit scores, proof of income etcetera. Again, strange bedfellows were made with this debacle, always a sign to be weary! In fact, you can be guaranteed it will not benefit the middle class when you see “bipartisan” efforts!!!!!!!!!!!

  64. Sparta

    Your last sentence at 3.28am

    “Those nasty CEO’s, how dare they use our legislation to make themselves rich!”

    Free market or no Free Market, Capitalism or no Capitalism we are all human beings and all know right from wrong. We also know if we are taking advantage of other people through our actions and decisons. Are you now saying that immoral action is pefectly ok in a capitalist society simply because we can get away with it.

    Oh what a terrible world we are growing into when we abandon any morals or principles in the name of money.

  65. Evan@6.00pm

    AS most people on this site know, I am a Mortgage Broker and I agree with a lot of what you are saying, however there are good and bad in all industries.

    There are over 1000 different home loans on the market and people do not have the time to search which ones better suit clients needs. They use a broker to identify suitable loans and submit applications on their behalf.

    Yes there are bad brokers, but also brokers who look after their customers long term.

    You may not know this. Unlike Real Estate Agents who once they get their commission have no worries, it is totally different in the Broker Market.

    A Bank pays me a commission after a loan settles, however if for ANY reason ( include, death, family split) and I mean any reason the loan is repaid within 2 years the Bank will take back everything it paid me.

    In addition few banks now pay trail for the first year, meaning if I do a home loan and the customer leaves in 11 months time I will receive 100% clawback of my upfront and have received nothing, absolutely nothing for my time effort, paper, petrol etc.

    So I need to look after my customers long term or suffer the consequences.

    It is amazing how much of a different outlook many people have when they realise any money paid to me is subject to 100% clawback for 2 years.

    How many other jobs permit someone to take back what they have paid you for 2 years.

  66. N5 – common sense implies a collective understanding of something (issue, state of being, etc).

    Common sense does not, never has and never will exist.

    There is only learned knowledge, skills and behaviour.

    The closest thing to common sense is that we are all alive – or are we?

    “…but remember ‘common sense’ evolves slowly….” Nature 5, on January 18th, 2009 at 7:55 pm

    …no it doesn’t, knowledge is passed onto a particular group and that is learned knowledge – nothing is common to all human beings – we are not instinctual – so much as curious.

    That said, I agree with the sentiments expressed in your post at 7:55…

  67. shaneinqld,

    “Are you now saying that immoral action is pefectly ok in a capitalist society simply because we can get away with it.”

    Of course not, I am saying it is inevitable in a capitalist system (people will usually do what is in their best interest, to include those that bought homes they couldn’t afford). A capitalist society hums on the greed of us all, our wants and needs. When government interferes or tries to “guide” the “invisible hand” we end up with our current debacle. The greed of those that wanted a home, the stupidity of the do-gooder politicians that granted them the credit they would normally not be eligible for and the greed of those that used that stupidity to line their pockets. Unfortunately, many here would rather focus on the greed of those that made a buck (because they knew when to bail out) instead of those that put this all in motion………….Like I’ve said many times before, we all like to blame others (a boogeyman) rather than acknowledge our own failings.

  68. Sparta

    No government in Australia demanded our Banks lend to people who could not afford it. Yet it happened here as well with the introduction of Low Doc Loans by the smart sellers coming over from the US.

    I have a problem with your analysis. If I go to a Bank I expect that Bank to have some sort of social responsibility in ensuring my best needs are met, not solely their profit.

    You state we seek to blame others and at times I agree. However I rely on a Bank to provide honesty and integrity or have those days gone. Most people are guided by financial advisers as they do not have financial skills and I rank Bank Staff as financial advisers as the decisions they make will effect their customers for life !!!. Its not simply the same as getting fries with a burger, yet thats how the Banks transformed into purely sales and cross sell focused.

    Why not focus on the greed of those that made a buck? of all the greed you are talking about that is the worst greed of all and the most immoral.

  69. shaneinqld, on January 19th, 2009 at 12:55 pm

    Wasting digital ink, Shane

    Methinks, Sparta, speaks like a Robber Baron…

    …but then who is s/he really? What does s/he do? How does s/he survive? What is her/his background?

    When I posted re ethics and professional responsibility – nowt…

    …and J Mc… it seems its getting worse…

    http://www.news.com.au/business/story/0,27753,24930968-462,00.html

    …as we have said all along – the truth (and honesty) will slowly trickle out…and…

    …no one will be safe…and..

    …it may take up to five years…

    …The Minister and I have assured our kids that we have enough capital to cover both their mortgages…if the worst comes to the worst all we have to do is sit tight and survive…till the recovery… my lot can do that…!

    Its those in over their heads I feel for…and we know a few, already in trouble…all through poor financial advice and in support of Sparta’s argument – lack of due diligence…caveat emptor!

    10% unemployment doesn’t sound so silly now…although always remember that will mean that 90% will STILL be employed…

    …and the tsunami is gathering speed as it tumbles down from Europe into Asia – straight towards us…

    …speaking of tsunami’s – where is all the expert advice from the world’s greatest treasurer – shouldn’t he be pushing forward with ideas and solutions at a time of the Nation’s greatest need … c’mon, Custard, where are ya!

    There he is, still hiding in the wings – still waiting – always a bridesmaid…

  70. Costello is probably still plotting how to get Howard out of the PM seat.

  71. Just thinking back, wasn’t the original purpose of low doc loans aimed at assisting people without an acceptable employment history such those on short term contracts. High incomes, savings history but not the previously acceptable standard of 2 years in the same job.

    And going back even further into history (as in when hubby and I went for our housing loan), the rule (and this was a rule make by the banks) was 1/6th deposit and a 2 year saving history. We were originally knocked back because although we had saved the right amount it was over too brief a period.

    Therefore if the same rules were applied today, then it would mean people having to save approximately $40,000-$60,000. And as the debt rate for Australians currently runs at 160% the possibility that anyone qualify for a housing loan (given current housing unaffordability) with the exception of the wealthy would be zip zilch and zero.

    I wonder how the current scenario would have been different if banks had been responsible lenders.

  72. MIn

    You are correct about the original purpose of Low Doc Loans, however they were open to corruption from day 1. When you can simply sign a form saying I earn x amount of dollars per annum there is no brake on the amount of lending permissable.

    It actually was 1/5th deposit 20% and a 2 year savings history with the Bank you were going to borrow from. I worked in the Bank then.

  73. joni, on January 19th, 2009 at 1:24 pm

    Wicked! 😆

  74. Agreed Shane. I am talking about 1974, but indeed it was probably 1/5th.

    But where did the corruption start? By ‘greedy people’ or greedy banks. Me thinks that if a bank breaks out the red balloons and says, You’ve Won, You Qualify that one cannot blame consumers for saying, Thank you, this is much appreciated.

    I was hoping that you might answer. I’ve been reading your inputs on the other thread. How is the pup going?

  75. Hi Min

    Sorry it has taken a while to reply. I am flat out today, .

    The rules were the same in 1982 as 1974. They pretty much started to change by around 1984/1985 when Co Ops staretd in local towns.

    The corruption of today I think basicallt started when the Commonwealth Bank was partially privatised and then fully privatised. The banking sector no longer had a major bank owned by the people for the people. They were now all owned by shareholders for the shareholders. You only need to see the horrific increase in CEO and Managenemt salaries as a result of the sale of the CBA. That is when greed really started in the Banks in Australia.

    Riley is doing well. Had the guys out form Australia Zoo to get a goanna out the chookyard ( again) and Riley is so friendly and he gets so excited and still thinks his left side can power like his right and of course bowls over, somewhere along he has torn the nails off his left front leg so a bit of a mess is the foot.

    Min my aunty said you can get leather boots for dogs off the internet. Have you heard of this or your family that have greyhounds. Trying to find something for his left feet as they drag and he wears the nails to the quick and they bleed badly. He has so many knocks on his left legs now, would be nice to find something. I use socks but they wear out and fall off all the time no matter what I do with them.
    Maybe you could offer a suggestion.

    I cannot find the damn cord to plug the camera into the comp to give you an update, will find it in 10 years time i suppose.

  76. No worries Shane, it’s the start of the new working year and I know how busy everyone is.

    If you don’t have any luck with the Greyhound Society give me Riley’s paw size and I’ll knit him socks. I think that this will do the trick. It might take a few goes but I’m sure that we’ll work something out.

    I’ve been knitting for premature babies and so have lots of soft wool to experiment with, but for Riley am thinking, leather outside and lots soft knitted padding inside.

  77. TB, getting worse? I think so.

    Search for soul of CEOs
    http://www.theaustralian.news.com.au/story/0,,24561163-12272,00.html?from=public_rss
    John McPhilbin of NSW 10:07am October 28, 2008

    It amazes me of just how deaf dumb and blind the world became to the troubles brewing in the US financial system Lets backtrack to 2001 in the US, one scandal after another broke as some of the largest companies in the world either went close to the edge or over. And why? Well I think William Flannagan, former writer and editor for Forbes, The Wall Street Journal, and author of ‘Dirty Rotten CEOS ‘How Business Leaders Are Fleecing America’ message should have rung alarm bells with investors and governments the world over, but nobody seemed to take much notice. In 2003 Flannagan warned: ‘Wall Street never likes to dwell on its fiascos. When its miscreants are caught, they usually admit nothing, yet promise never to do it again. They pay some fines, lop off a few heads, then everyone gets back to business as usual. But the latest corporate scandals have created too much carnage to allow a quick return to normalcy. Tens of millions of investors were badly burned; trillions of dollars evaporated; hundreds of thousands of jobs vanished. Not since 1929 have Americans had their faith in corporate America rocked so severely. Don’t expect them to flock back into the stock market any time soon. It wasn’t just a market cycle that caused all this damage. It wasn’t the popping of the dot.com bubble. It wasn’t the slowing global economy. It was the cupidity and stupidity of CEOs who were out to make themselves billionaires. Screw everyone else, from stockholders to employees to regulators, the business leaders seemed to be saying. Like dispatches from the front, the press reports of the corporate scandals were filled with grim numbers as one major corporation after another fell dead or was gravely wounded. Enron. Arthur Andersen. Global Crossing. WorldCom. AOL Time Warner. Tyco. Adelphia. Qwest. Even Citigroup, the largest bank in the world. For months we were bombarded with stories of fraud and recklessness that involved bankers, directors, brokers, analysts, consultants, politicians, and lawyers, as well as the chief executives themselves. It became hard to tell the players without a scorecard. (The Forbes List of Highest Paid CEOs could have served as one, however.) In the end, it all became a blur for many readers and investors. Newspapers, magazines, and TV hammered the scandals until they became as depressing as opening up your 401(k) statement. Readers welcomed the comic relief of Tyco’s Dennis Kozlowski and his $6,000 shower curtain, Adelphia’s John Rigas and his $13 million private golf course, and the laid-off Women of Enron posing in Playboy to pay the rent. But the evil these men did shouldn’t be simply swept into history’s dustbin (the one marked “recycle”) and forgotten until the next time. We need to view slow-motion replays of some of the ugliest moments in American capitalism so that they won’t be repeated. If you go beyond the headlines, it becomes clear that what happened was, sadly, inevitable. The outrageous award of stock options was the common denominator in all of these grim tales. Wave enough money in the faces of enough CEOs, and too many of them will do anything to get it. Couple that with puppet boards of directors, greedy moneylenders, ignorant investors, and sleepy regulators¿and presto! you have the critical mass for disaster. What can you do as a hapless investor? Read this book, remember its lessons, and in the words of the Albert Finney character in Saturday and Sunday Morning, “Don’t let the bastards grind you down.” You have stockholder rights; use them. You have brains; think before you invest. You have votes; don’t waste them. You should be mad as hell, not only because most of these dirty rotten CEOs will get away with what they did. They robbed you blind. Don’t take it anymore. Stop them before they steal again.”

  78. johnmcphilbin, on January 19th, 2009 at 3:54 pm

    “Don’t let the bastards grind you down.”

    …or as we say in our family, JMc, “nils illegitemus carborundum”…

    …isn’t it amazing…game set and match? I do wish we had both been wrong!

    …I still wait for more – those re-insurance/insurance company CEO’s are still too quiet for me…

    …and our government is very, very quiet…

    …and I believe The Robber Barons – most of – will/have got away with it again!

    Alan Kohler has this to say about Access Ec.

    http://www.businessspectator.com.au/bs.nsf/Article/Whistling-in-the-dark-$pd20090119-NEUBW?OpenDocument&src=kgb

  79. John

    One of the things people seem to not understand is that there can be a 100% vote against CEO and Management wage increases, however this is not binding at all. The only people that can actually approve increases or decreases are the board.

    An amazing anomily that the owners don’t make the deicison, the board does. They simply sus out the big shareholders to make sure they will vote for the increases so the board don’t look like dickheads at the shareholders meetings.

  80. shaneinqld, on January 19th, 2009 at 4:08 pm

    Shane, you don’t mean its a, a a – conspiracy?

  81. TB

    Kohler: “Forecasting a recession for 2009 is not a guess because the recession has already begun; after this year absolutely anything is possible.”

    This has been the way I’ve been seeing it for some time now, and frankly I wished I was wrong, but this type of correction is crucial if we’re to get the global financial and economic system into a more balanced position.

    Shane:

    “An amazing anomily that the owners don’t make the deicison, the board does. They simply sus out the big shareholders to make sure they will vote for the increases so the board don’t look like dickheads at the shareholders meetings.”

    You’re spot on Shane, however, if this doesn’t start changing now, I’d be very surprised.

  82. TB

    LOL you answered that yourself with the stammer.

    John

    It has not changed at all, pour CEOs continue to receive abscene increases in salaries and short term incentive gains. Sol Trujillo is a classic example.

    I continue to receive voting rights for meetings and they all contain wagfe increases and share issues on short erm incentive gains. The thing is they have already received approval for the changes by the majority of big shareholders. I vote no every time, but it is a foregone conclusion that the resolutions will pass. Or 95% of the time they will pass.

  83. MIn

    Thanks so much for offer of socks.

    Yes he will need leather on the outside. Being one of the greyhound breed they have such a massive explosion of energy with that first movement of the legs that everything is dragged off and the damage is done so quickly. Leather will protect the ouside and some soft socks inside would cushion that initial burst.

    You honestly don’t see how powerful they are when they are normal, however with only one side of Riley working to full potential the burst and slip of the legs is quite amazing, its is like a rocket until the leg flies from underneath him because the left side doesn’t have the same juice. Only then does he slow down but the damage has already been done as he forgets one side does not work properly.

  84. A little more than excess lending and borrowing I think, and obvious greed, it’s essentially criminal but apparently legal.

    Michael West Storm founder tries again
    http://business.smh.com.au/business/storm-founder-tries-again-20090119-7k2p.html

    It was mid-2007, the height of the stock market boom, and clients of Storm Financial Group partied the night away in the banquet halls of Bracciano Castle, a magnificent fifteenth-century edifice towering high above the azure waters of Lake Bracciano on the outskirts of Rome.
    Their host, and Storm founder, Emmanuel Cassimatis confided to one client that the banks were picking up the bill. Not that Cassimatis needed to dig into the marketing budgets of the bankers and margin lenders. Clients were paying for the holiday anyway, and besides, Storm charged some of the most heroic fees in the financial services business and, as it turned out, for some of the most fundamentally-flawed advice.

    At a clip of 7.5% of gross assets upfront, it is little wonder Emmanuel and his wife Julie could get about in a Lear jet. And it was little wonder their sales force would urge clients to borrow against their homes to invest in the stock market, even pensioners. The higher the debts, the higher the fees, the higher the commissions

    Whereabouts of ASIC

    Then there was this email:
    ”I am one of the poor suckers who invested with Storm!! I have around $100,000 left out of an initial investment of nearly $300,000 – my wife is left with a mere $21,000 from a similar investment. I only borrowed $200,000 – she unfortunately was seduced into borrowing $355,000. I still have shares but her money was converted into cash and deposited in a Macquarie Cash Management Trust account at 3.2% interest (the margin loan interest is about 9% so she is losing big $$$s each week). She has basically been left high and dry (see the attached about re-entering the market when it reaches 4,400!!)

  85. Shaneinqld,

    “I have a problem with your analysis. If I go to a Bank I expect that Bank to have some sort of social responsibility in ensuring my best needs are met, not solely their profit.”

    Well you are naive after all there Shane. A bank has no responsibility but to be honest in their dealings with you. They hold on to your money and grant loans with that same money. There is no “social responsibility” required of banks other than divulging the truth and protecting your money. If you do not understand the terms of your loan then YOU, AS THE CONSUMER HAVE A RESPONSIBILITY TO FIND OUT!!!!!!! You can call it what you like but in the case of my country, most never would have made it through the screening process if not for the government! You sign a statement to the affect that you understand the terms of the agreement, don’t you? Is not a credit score an objective measure of one’s “decision making” capabilities in matters of money in many respects? When that has been removed, you still feel it the responsibility of the banks to “understand/comprehend” for the consumer? While there are obvious incidents of “fraud” at the hands of some you seem to want to give a pass to the consumers? Social responsibility, are you kidding me? What exactly does that mean to you? What about the social responsibility of the consumers my tax money is now going to help bail out of their “bad decision”? What about the thousands that bought extra homes trying to “flip” them for a buck but got caught with their pants down?

    “However I rely on a Bank to provide honesty and integrity or have those days gone. Most people are guided by financial advisers as they do not have financial skills and I rank Bank Staff as financial advisers as the decisions they make will affect their customers for life !!!.”

    And I would say that if you, as a consumer are going to make a decision that will affect you for the rest of your life you know what the hell it is you are signing!!!!!!! Honesty is all they are required to provide you with and short of having a third party (which would also be a human bound to make mistakes) standing over you explaining things to you free of charge what else should the banks be required to do? I have no love for those who have profited from this debacle but you and others seem obsessed with blaming everybody but the consumer or the root of the cause, bad legislature.

    “Why not focus on the greed of those that made a buck? Of all the greed you are talking about that is the worst greed of all and the most immoral.”

    Let me get this straight, the government creates the loopholes (no credit checks, proof of employment, no down payment, no proof of citizenship in some cases) and you say go after those who were encouraged and in some cases required to make such loans? Are you kidding me? What is their crime then? The consumer signs a statement to the affect that they understand the terms of their loan, you do understand that don’t you? How about accepting that many people wanted to own homes they knew they couldn’t afford but proceeded forward because the prospect of getting out of a one room apartment in “Shit Ville” for a 4 bedroom house with a yard in “Pleasant Ville” was too much to resist? Can you not here them rationalizing to themselves, “things will get better, I will just get a second job, when I finish school, or simply praying”?
    But then they have to have furniture to go with that house, a plasma…..Is it so difficult for you to imagine? Every time we use our credit cards and don’t pay the balance off come the end of the month we are all guilty of the same motivation/desire. I remember the day when you had to apply for a credit card but now they send them to you with 15,000 dollar limits and activation/approval requires a phone call? Thankfully, this experiment is being reversed as well! The terms are there in black and white but many activate anyway? Really man, do I need to explain any further? Barring the very few that use them in desperate times for survival on items like food, MOST buy “crap” they WANT! We have all gotten use to living outside of what we can afford. This housing mess simply got out of hand because we allowed people to do so when we dissolved the safety measures that were put their with good reason through trial and error to protect people from themselves as well. This is what happens when you “experiment” with society while ignoring history!!!!!! It is the old cliché; history is doomed to repeat itself!!!!!!!!!!!!!!!

  86. Me thinks Malcolm is wising up a bit..”. but the real issue is the quality of the Government’s spending”

    Malcolm Turnbull and the Coalition claw back support in latest Newspoll
    http://www.theaustralian.news.com.au/story/0,25197,24934531-601,00.html

    In the wake of Access Economics’ forecast yesterday that the federal budget was “buggered”, Mr Turnbull said a budget deficit should be a last resort.

    “Well, deficits should always be avoided if possible, but the real issue is the quality of the Government’s spending. You see deficits are something that we should always try to avoid but there will be circumstances, plainly, where they cannot be avoided,” he said.

  87. John,

    What is your opinion on the housing debacle in regards to the legislation I mentioned? Anything you can point me to that may help me “see the light”?

  88. John,

    I would be curious to get your opinion on how you think this whole thing got started. Clearly you must have one?

  89. Sparta

    Your country contains what I consider an unusually large number of disgraceful advantage takers in the name of capitlism and unfortunately our country has been slowly going down the same path by importing the no social responsibility bullsh!t your country carries on with along with its inventors.

    Do you, or have you worked in a Bank ?. I did for 23 years so I think I can comment with a bit of experience in how this mess came about without the typical political mud slinging that seems to be happening in blaming Clinton for all the ills of today.

    Australia Banks DO HAVE a social responsibility just ask them and also ask our Judges. You obviously have no idea regarding our Banks and Financial Institutions in Australia as they are governed by a Consumer Credit Code, something that does not exist in US. Maybe their social responsibility could be one reason why were slower to launch ourselves into the mess your country is in via its financial institutions. Although we were well on the way thanks mainly to the US sales gurus and CEOs we imported.

    Do you also understand that unlike the US where you simply hand the keys back and the Bank wears the loss if the house sells for less than the debt. This is not the case in Australia. You are responsible for all the debt and any balance left over after the sale of a home. It truly is a loan that could effect you for the rest of your life.

    Why is it OK for a company to take advantage of Government Loop Holes.?Most of those are not intentional and usually closed as soon as they find them.

    Once again I am not disputing legality I am disputing morals of which you continually seem to justify the need to not have in todays society if you are a business.

    I fully agree regtarding the plasma tv and all the other items as well, but once again how did they get those. Oh thats right, a home loan with fries ( the pre approved Credit Card of $10,000 or the Line of Credit)

    How strange I find it that the most capitalist nation on earth needs the communist funds of China to continue to fund its wars and survive.

    I never said not to blame borrowers, but how many of those borrowers have the skills and competence to understand what they are signing. They rely on advice from their financial institution and legal representatives.

    I truly hope we never lower our country to the greed and money at all cost with no regard to our citizens although we seemed to be well on the way. In one way thank god for the crisis it may just implment a social capitalism which is good for all not just some.

    No wonder your country is going down the tubes faster than any other and is in hock by hundreds of billions to the communist china. When all social responsibility and human feeling goes out of your society it collapses.

    It certainly appears form the comments on blog sites in Australia ( excluding Piers and Bolt) That our citizens actually want social responsibility to be part of our country as it always has been rather than import this amazing extreme type of capitalism that exists in the US.

    I notice you mention tax money, sounds like the typical catch cry lower taxes, lower taxes, lower taxes, forgetting that a country cannot exist without equitable taxation, neither can a country continue to fight two wars and lower taxes for the wealthy at the same time without getting itself into a future disaster.

    I certainly hope your communist friends China that have propped up your economy for a number of years now never call in their loans like Banks are or you will all have to move as China will own your country.

  90. Sparta

    I’ve studied Soros’ view of markets for some time and am firmly convinced he had the problem pegged. Nobody wanted to listen to him, except probably those who understood the principles behind his theory.

    The worst market crisis in 60 years
    http://www.ft.com/cms/s/0/24f73610-c91e-11dc-9807-000077b07658.html
    By George Soros

    Published: January 22 2008

    The current financial crisis was precipitated by a bubble in the US housing market. In some ways it resembles other crises that have occurred since the end of the second world war at intervals ranging from four to 10 years.

    However, there is a profound difference: the current crisis marks the end of an era of credit expansion based on the dollar as the international reserve currency. The periodic crises were part of a larger boom-bust process. The current crisis is the culmination of a super-boom that has lasted for more than 60 years.

    Boom-bust processes usually revolve around credit and always involve a bias or misconception. This is usually a failure to recognise a reflexive, circular connection between the willingness to lend and the value of the collateral. Ease of credit generates demand that pushes up the value of property, which in turn increases the amount of credit available. A bubble starts when people buy houses in the expectation that they can refinance their mortgages at a profit. The recent US housing boom is a case in point. The 60-year super-boom is a more complicated case.

    Every time the credit expansion ran into trouble the financial authorities intervened, injecting liquidity and finding other ways to stimulate the economy. That created a system of asymmetric incentives also known as moral hazard, which encouraged ever greater credit expansion. The system was so successful that people came to believe in what former US president Ronald Reagan called the magic of the marketplace and I call market fundamentalism. Fundamentalists believe that markets tend towards equilibrium and the common interest is best served by allowing participants to pursue their self-interest. It is an obvious misconception, because it was the intervention of the authorities that prevented financial markets from breaking down, not the markets themselves. Nevertheless, market fundamentalism emerged as the dominant ideology in the 1980s, when financial markets started to become globalised and the US started to run a current account deficit.

    Globalisation allowed the US to suck up the savings of the rest of the world and consume more than it produced. The US current account deficit reached 6.2 per cent of gross national product in 2006. The financial markets encouraged consumers to borrow by introducing ever more sophisticated instruments and more generous terms. The authorities aided and abetted the process by intervening whenever the global financial system was at risk. Since 1980, regulations have been progressively relaxed until they have practically disappeared.

    The super-boom got out of hand when the new products became so complicated that the authorities could no longer calculate the risks and started relying on the risk management methods of the banks themselves. Similarly, the rating agencies relied on the information provided by the originators of synthetic products. It was a shocking abdication of responsibility.

    Everything that could go wrong did. What started with subprime mortgages spread to all collateralised debt obligations, endangered municipal and mortgage insurance and reinsurance companies and threatened to unravel the multi-trillion-dollar credit default swap market. Investment banks’ commitments to leveraged buyouts became liabilities. Market-neutral hedge funds turned out not to be market-neutral and had to be unwound. The asset-backed commercial paper market came to a standstill and the special investment vehicles set up by banks to get mortgages off their balance sheets could no longer get outside financing. The final blow came when interbank lending, which is at the heart of the financial system, was disrupted because banks had to husband their resources and could not trust their counterparties. The central banks had to inject an unprecedented amount of money and extend credit on an unprecedented range of securities to a broader range of institutions than ever before. That made the crisis more severe than any since the second world war.

    Credit expansion must now be followed by a period of contraction, because some of the new credit instruments and practices are unsound and unsustainable. The ability of the financial authorities to stimulate the economy is constrained by the unwillingness of the rest of the world to accumulate additional dollar reserves. Until recently, investors were hoping that the US Federal Reserve would do whatever it takes to avoid a recession, because that is what it did on previous occasions. Now they will have to realise that the Fed may no longer be in a position to do so. With oil, food and other commodities firm, and the renminbi appreciating somewhat faster, the Fed also has to worry about inflation. If federal funds were lowered beyond a certain point, the dollar would come under renewed pressure and long-term bonds would actually go up in yield. Where that point is, is impossible to determine. When it is reached, the ability of the Fed to stimulate the economy comes to an end.

    Although a recession in the developed world is now more or less inevitable, China, India and some of the oil-producing countries are in a very strong countertrend. So, the current financial crisis is less likely to cause a global recession than a radical realignment of the global economy, with a relative decline of the US and the rise of China and other countries in the developing world. [Note, not even Soros picked that China would run into trouble of its own]

    The danger is that the resulting political tensions, including US protectionism, may disrupt the global economy and plunge the world into recession or worse.

    The writer is chairman of Soros Fund Management

  91. Sparta

    I’ve also gained quite a few insights from Hyman Minsky that I think are applicable – very similar to Soros’ worldview.

    http://blogs.news.com.au/news/blogocracy/index.php/news/comments/land_of_plenty_guest_post_by_mark_davis/desc/P60/

    “To be exact leadership does not seem to be aware that the normal functioning of our economy leads to financial trauma and crises, inflation, currency depreciations, unemployment and poverty, in the midst of what could be virtual universal affluence. In short, financially complex capitalism is inherently flawed.”

    Hyman Minsky 1986

    “Over a a protracted period of good times, capitalist economies tend to move from a structure dominated by hedge finance units to a structure in which there is a large weight to units engaged in speculative and Ponzi financing”

    Hyman Minsky 1992

    Minsky would not attribute the crisis to “irrational exuberance” or “manias” or “bubbles.” Those who were caught up in the boom behaved “rationally,” at least according to the “model of the model” they had developed
    to guide their behavior. That model included the prospective course of asset prices, future income, behavior of policymakers, and ability to hedge risks or shift them onto others. It is only in retrospect that we can see the boom for what it was: mass delusion propagated in part by policymakers and those with vested interests.

    However, a large part of the blame must be laid on the relative stability experienced over the past couple of decades — the tranquility that made the boom possible also created fragility because,according to Minsky, stability is destabilizing.

    The super-boom got out of hand when the new products became so complicated that the authorities could no longer calculate the risks and started relying on the risk management methods of the banks themselves. Similarly, the rating agencies relied on the information provided by the originators of synthetic products. It was a shocking abdication of responsibility.

    It think it is far too simple to attribute the current crisis to a speculative boom in real estate, to excessive monetary ease, or even to lax supervision. The causes are complex and have developed over a very long period.As such, solutions will also be multifaceted, tentative,and contingent upon continued evolution of the financial system, with an eye to longer-term trends that have made the system much more prone to crisis, in my opinion..
    John McPhilbin of NSW
    Tue 23 Sep 08 (02:43pm)

  92. Sparta

    It would be nice if this crisis were on the linear variety, however, it as non-linear as you can get – hence the reason I criticised Malcolm Turnbull for his simplistic assessment.

    Perspective: Why ‘Market Fundamentalism’ Has Failed

    https://blogocrats.wordpress.com/2008/10/14/ts-meltdown/
    Very little has been discussed about the origins of the current crisis in a larger economic framework. So, I went hunting for something that would offer an economic-political perspective and found an excellent article by a professor of economics in the US, which I think is excellent as and overview.

    Senior Scholar L. Randall Wray is a professor at the University of Missouri – Kansas City and director of research at the Center for Full Employment and Price Stability. I think you will find his theory very insightful , thought provoking and most of all, more suitable that the outdated ‘free market model’. The theory he applies comes from the work of economist Hyman Minsky

  93. Let me re-phrase that:

    It would be nice if this crisis were of the linear variety, however, it’s as non-linear as you can get – hence the reason I criticised Malcolm Turnbull for his simplistic assessment

  94. God! that’s an ugly mugshot

  95. Shaneinqld,

    “Your country contains what I consider an unusually large number of disgraceful advantage takers in the name of capitlism and unfortunately our country has been slowly going down the same path by importing the no social responsibility bullsh!t your country carries on with along with its inventors.”

    Well in regards to “per capita” you are probably right when comparing your country of 21 million, a population we had about 200 years ago, to our 300 million plus…..However, let’s not bash the inventors too much as your country used the “input of our inventors” along with the British system when constructing your laws.

    “Do you, or have you worked in a Bank ?. I did for 23 years so I think I can comment with a bit of experience in how this mess came about without the typical political mud slinging that seems to be happening in blaming Clinton for all the ills of today.”

    Shane, I would prefer if we avoided the resume bit in making a point. You can comment but so far your only contribution is “moral responsibility” without defining what that means and how we enforce it? Besides, I am not blaming Clinton for everything that came out of his policies but they certainly are at the root and you have offered nothing to the contrary but blaming entities like greed?

    “Australia Banks DO HAVE a social responsibility just ask them and also ask our Judges. You obviously have no idea regarding our Banks and Financial Institutions in Australia as they are governed by a Consumer Credit Code, something that does not exist in US.”

    Well of course I am not an expert on the matter in the US or Australia, are you? What does that mean exactly? We are required to divulge the terms of the loan here and the consumer in turn signs a statement that they understand said terms, what further responsibility does the Australian Banking system require? Please, enlighten me……

    “Maybe their social responsibility could be one reason why were slower to launch ourselves into the mess your country is in via its financial institutions. Although we were well on the way thanks mainly to the US sales gurus and CEOs we imported.”

    Yes, that is right, blame the US Shane for the poor decisions of your leaders……Who is the bigger idiot, the idiot or the person who follows him?

    “Do you also understand that unlike the US where you simply hand the keys back and the Bank wears the loss if the house sells for less than the debt. This is not the case in Australia. You are responsible for all the debt and any balance left over after the sale of a home. It truly is a loan that could effect you for the rest of your life.”

    Yes, we have what is called “Bankruptcy Laws” which covers this scenario quite well and it is tied into your “credit or FICA score” which was overlooked with Clinton’s legislation that you seem to think bears no role in this.

    “Why is it OK for a company to take advantage of Government Loop Holes.?Most of those are not intentional and usually closed as soon as they find them.”

    Geez……Follow along please. Government says you cannot disqualify people based on their credit score, whether or not they are employed etcetera because we have this profound belief that such measures are really holding people back and if we just give them the chance you will see. You must give them a loan or face the consequences. Banks knowing what will most likely happen are forced to go along anyway, discover there is a problem & so does the government, but the banks decide there is money to be made with virtually no risk to themselves and so does the government with Fannie, being tax-payer backed up if things do go south; so all continue to give loans to those they no will not be able to pay them back at a later date unless their circumstances change. What part of this do you not get?

    “Once again I am not disputing legality I am disputing morals of which you continually seem to justify the need to not have in todays society if you are a business.”

    I have never justified anything to that affect and never would. I am saying it is human nature and morality is role stops when the consumer signs they “UNDERSTAND THE TERMS OF THEIR LOAN”.

    “I fully agree regtarding the plasma tv and all the other items as well, but once again how did they get those. Oh thats right, a home loan with fries ( the pre approved Credit Card of $10,000 or the Line of Credit)”

    THEY USED THE CARD! THE ONE THAT CAME WITH THE TERMS OF THEIR USE! THEY NO LONGER NEEDED TO QUALIFY BASED ON CREDIT SCORE ETC. DUE TO THE LEGISLATION….WHAT DO YOU NOT GET ABOUT THAT?

    “How strange I find it that the most capitalist nation on earth needs the communist funds of China to continue to fund its wars and survive.”

    Here we go, yes, we in the West (to include your own) have become addicted to a pay later mentality over the past 10 years or so, what is your point? Our addiction is the only reason why China can call itself “quasi-modern” or marvel in its success. You do know that Globalization is meant to do just that don’t you?

    “I never said not to blame borrowers, but how many of those borrowers have the skills and competence to understand what they are signing. They rely on advice from their financial institution and legal representatives.”

    As I suspected, apparently in your world they are all idiots that don’t know how to read or have the decision making abilities to get somebody who does before they sign. Perhaps we could use an objective measure to gage what kind of decision making capabilities they do have? Oh wait, you mean like a credit score that we are now not allowed to use?????????? Good grief!

    “I truly hope we never lower our country to the greed and money at all cost with no regard to our citizens although we seemed to be well on the way. In one way thank god for the crisis it may just implment a social capitalism which is good for all not just some.”

    Dude, it is the citizens that have help put us here and bad policy. Greed, well then reinvent Russia and see where that gets you. Utopia is a myth my friend. You allude to a plan that has never worked and never will so stop trying to reinvent the wheel! China tried but failed an now owes it’s success to the West’s greed, to include that of your citizens!

    “No wonder your country is going down the tubes faster than any other and is in hock by hundreds of billions to the communist china. When all social responsibility and human feeling goes out of your society it collapses.”

    Are we showing are true colors now Shane? Do you know how many times people like yourself have predicted the same thing? Yes, and do you have any idea how much debt is owed to this country? Well when it collapses I will be washing up on your shores to claim asylum!

    “It certainly appears form the comments on blog sites in Australia ( excluding Piers and Bolt) That our citizens actually want social responsibility to be part of our country as it always has been rather than import this amazing extreme type of capitalism that exists in the US.”

    Now who thinks their country is the “berries”? Dude, you are more like us then you can possibly grasp. Nothing has been imported dude, it was there to begin with.

    “I notice you mention tax money, sounds like the typical catch cry lower taxes, lower taxes, lower taxes, forgetting that a country cannot exist without equitable taxation, neither can a country continue to fight two wars and lower taxes for the wealthy at the same time without getting itself into a future disaster.”

    I am all for taxes where needed Shane but one thing is certain, government cannot be trusted with somebody else’s money. I can give you a litany of examples of why this is a moronic statement but where to start? How about the first half of the 700 billion dollar bail out they felt was needed to save the country? The banks are now unable to tell us where it has gone but Obama has cleared the way for another 300 billion and wants more; responsible use of our taxes. Social Security tax, um you must continue to pay but it won’t actually be there for you when you retire. Your blind faith in government and profound misunderstanding of human nature is truly disturbing but given the level of entitlements your country offers it doesn’t surprise me! Your socialist leanings have come through quite clearly for once. “lower taxes for the wealthy” ok, pretty much says it all. You have more than I do so you have more of a responsibility then the next man. Brilliant Shane, absolutely brilliant, especially as it is obvious you have no clue who pays the most in taxes and who pays nothing!!!!!!!!

    “I certainly hope your communist friends China that have propped up your economy for a number of years now never call in their loans like Banks are or you will all have to move as China will own your country.”

    Umm, there your communist friends as well there Shane or did you miss that one? Propped up our economy? How is the resource boom in the WA doing these days? China will own our country? Boy, geopolitics must be a new arena for you……….

  96. Sparta

    I like the avatar! nice.

  97. Sparta Phoenix, AZ USA, on January 20th, 2009 at 6:47 am Said: ….If you do not understand the terms of your loan then YOU, AS THE CONSUMER HAVE A RESPONSIBILITY TO FIND OUT!!!!!!!

    And so Sparta when does False and misleading advertising kick in?

  98. Joni,

    Thanks mate……………

    John,

    I will give your material the time it deserves………….

  99. Min,

    “And so Sparta when does False and misleading advertising kick in?”

    Where it can be proven it has occurred, prosecute the bastards! I have no doubt that such measures were in play but it will be hard in a court of law for a person to claim they didn’t understand the terms of their loans when they signed something to the contrary, wouldn’t you agree?

  100. Sparta

    I appreciate your interest.

  101. Sparta

    Jim Rogers wrote something interesting in 2003:

    “ The current bubble that Greenspan does not see is the consumption bubble he is causing. He has the lunatic idea that a nation can consume its way to prosperity although it has never been done in history.”

    In America, if you have a job, you pay taxes. If you buy a stock and you get a dividend, you pay taxes. If you have a capital gain, you pay taxes again. And when you die, your estate pays taxes. If you live long enough to get social security, they tax your social security income. Remember: you paid taxes on all this money when you originally earned it yet they tax it again and again. These policies are not very conducive to encourage saving or investment. They promote consumption.

    By contrast, the countries that have been doing well the last 30 or 40 years, are the countries that encourage saving and investing. Singapore is one of the most astonishing cities in the world. Forty years ago it was a slum. Now, in terms of per-capita reserves, it’s one of the richest countries in the world. One of the reasons Singapore was so successful is its dictator, Lee Kwan Yu, insisted that everyone save and invest a large part of their income. Whatever Lee’s policies toward personal freedom, at least he forced people to save and invest. History shows that people who save and invest grow and prosper, and the others deteriorate and collapse.

    Artificially low interest rates and rapid credit creation policies set by Greenspan and the Federal Reserve caused a bubble in the US stocks of the late 1990s, policies now being pursued at the Fed are making the bubble worse. They are changing it from a stock market bubble to a consumption and housing bubble. And when those bubbles burst, it’s going to be worse than the stock market bubble, because there are many more people who are involved in consumption and housing. When all these people find out that house price don’t go up forever, with very high credit card debt, there are going to be a lot of angry people.

    No one, of course, wants to hear it. They want the quick fix. They want to buy the stock and watch it go up 25 percent because that’s what happened last year, and that’s what they say on TV. They want another interest cut, because they’ve heard that’s what will make the economy boom.”

  102. Sparta re: for a person to claim they didn’t understand the terms of their loans when they signed something to the contrary, wouldn’t you agree?

    And this is where we get to the crux of the matter. How well did/do people taking out loans positively thrown at them understand the 2 pages of fine print? In common law, it is the ordinary person test.

    I suggest that for a young couple taking out their 1st housing loan with no knowledge of the law would have little understanding of the ramifications of those 2 pages of fine print (that is, even if they were provided with any opportunity to read them) before the pen was pressed into their hands.

  103. Lets see how much we can screw down the system.

    On news that the US is contemplating increasing subsidies across several products the EU has announced it will do so.

    So now we can add increasing tariffs to our woes and the long term detriment of the planet.

    Just where is this free market that the right keep going on about?

  104. I’ve posted a graph at the top of the page to illustrate just how long recoveries can take. The market finally reached previous highs in 1954 after the 1929 crash.

    Another ; THE DOW JONES INDUSTRIAL AVERAGE (US)

    December 31, 1964 874.12
    December 31, 1981 875.00

  105. The S&P/ASX 200 is down 125.2 points, or 3.5 per cent, to 3464.1, its lowest level since November 24, around the time shares crumbled to their lowest level in almost five years.

  106. I am going to ask a dumb question. But how does the current downer compare with previous years’ post Christmas?

    JohnMcP (and isn’t he gorgeous) mentioned the lowest since late November.

    Explained simply to me would be good.

  107. Min,

    “I suggest that for a young couple taking out their 1st housing loan with no knowledge of the law would have little understanding of the ramifications of those 2 pages of fine print (that is, even if they were provided with any opportunity to read them) before the pen was pressed into their hands.”

    I would put forth that in some cases you are probably right, like loans made to foreign citizens with limited language skills…..

    http://www.michnews.com/cgi-bin/artman/exec/view.cgi/288/8970/printer

    What is the answer then for an otherwise competent consumer? We have perspective buyers submit proof of understanding outside of signing they understand? I understand where you’re coming from Min but I am not sure how the ignorance of a buyer, who claims otherwise with their signature, frees them from the responsibilities of said action and makes the average bank, more culpable for the ramifications? Nobody is pressing the pen into their hands in my opinion.

  108. Sparta..of course pens are pressed into their hands. And as shane stated, Do you want fries with that? aka a credit card.

    And quote: how the ignorance of a buyer, who claims otherwise with their signature, frees them from the responsibilities..

    A 4 year old child can sign their signature. A signature does not indicate understanding of the contract.

    Hence the reason for fine print in contracts, so as to make the terms of the contract more difficult to comprehend by average people.

  109. Sparta

    Why can I not bash the inventors if I disagree with the laws. I have no doubt in my mind that when your forefathers legislated for the right of Americans to bear arms they imagined the use of those arms against foreign aggressors and not the 40,000 deaths oer annum from firearms in the US. I think they would be turning in their graves. So I see no problem in bashing inventors if what they invented has been taken out of context.

    I will enlighten you on the obligations of financial institutions in our country. They have a moral code called Duty Of Care under our CCC and as such have a duty of care to 1) Ensure the customer if fully capable of repaying the adavnce based on information received and investigated. 2) Ensure the customer was fully aware of their obligations and signed the doucments of their own free will and without co-ertion. 3) Ensure that the facility provided will not place undue hardship or stress on the applicant based on the situation as at the date of application.

    Right now there is a class action against one lender who has very high exit fees. the customers signed knowing what the fees were and the competitive rate. The class action by customers is claiming that their Interest rate is no longer competitive as it is far higher than all other funders and that the exit fees are above and beyond reasonable. Under our laws they stand a good chance of winning.

    I have no doubt there will be many more of these in the future as our courts delve back into the Duty of Care that exists in our financial system which seems to have been forgotten during the last 15 years of boom lending.

    I am not blaming the US as a whole Sparta I am blaming the people in the US who invented all of this through manipulation and interpretation. I agree we are just as bigger idiots, many of us tried to tell our management that these loony sales programmes being sold to our bosses by american companies were nothing but crappy gimmicks, however we knew nothing.

    Are you telling me that your Government said to your banks you will lend to anyone we tell you to and you have no decision in the matter ?
    If not then the final decision on any loan rested with the financial institution that provided the finance.

    Bankruptcy laws are not tied to any credit score over here. If you buy a house for $400,000 and borrow $350,000 from the Bank and lose your job and sell the home for $320,000 you still owe the Bank $30,000. In the US you hand back the home and that is the end of your responsibility. If this is incorrect please refer me to information that states otherwise.

    You state you have never justified anything to the effect of morals not needed, yet your answer is it is Human Nature. It is Human Nature to do many things and we have laws to stop that Human Nature being detrimental to the whole community. Why not when it comes to financial commitments as well.

    They used the Card, yes and were told they could afford it after relying on those who should know the circumsatnces telling them.

    Regarding becoming addicted to the pay later mentality and I agree. What I was referring to is the 500 billion that China has lent to your government to bail it out. At this stage we have no borrowings from China by our government.

    Amazing you comment that in my world all customers are idiots. If that is the case then in your world all of the customers must be fully educated in a degree in law and finance to be fully conversant with their total obligations.

    Russia is being re in vented now Sparta, and not for the better.

    I am not predicting and certainly not wishing the downfall of your country ,simply trying to get you to open your eyes and realise that a communist country namely China is the one lending hundreds of billions of dollars to your government. Not your buinesses, your government

    We are more like you and I agree thanks to the infiltration of so many things american it makes me sad that we are losing our own identity, from our own slang to what we call things.

    My socialist leanings is quite a funny comment when I own my own business. The truth is I have a social not conscience.

    Yes I certainly know full well who is paying the most tax and is is the little worker who has no ability to reduce the PAYG tax they pay through all of the benefits and tax breaks afforded the multinational companies and their offshore dealins and taxation minimisation schemes. Lets be realistic here. Your minimum wage has not increased for 10 years, wonder how those poor buggars are doing as I have no doubt their costs have increased.

    They are our communist friends true, but our government didn’t need 500 billion off them to survive. Well nmot ye anyway.

    Sparta please understand that I am not bashing America as a whole. I have family and friends in many states in the US. And I support and criticise the US on all different issues. I am not a blind hater. What I am doing is voicing my absolute disgust as to how this financial situation has unfolded. And as for CEOs in this country they have just as much to answer for.

  110. John

    Any reason for the drop in the ASX today? I have been flat out today and have only had a 45 min break, so unable to read any breaking news.

  111. The decline in the share market was always going to happen. It isn’t simply due to the USA market, sub prime, regulation or lack of regulation.

    Traditionally the price/earnings ratio of listed companies has been about 10-12. This level makes sense. Over recent years profits have increased, but the value of the shares has escalated even more quickly. PE has been up to 30 in some sectors.

    Private (unlisted) companies remained valued at about 8-10 times PE, listed companies would borrow to purchase them, knowing that the value of the acquisition would be factored into the share price at around twice (ie 20+) this. There was competition to consolidate through borrowing. This fed the frenzy, fed the increasing stock price.

    The behaviour wasn’t limited to the USA. Though those Australian companies that borrowed in $US are suffering more.

    Everyone was saying the share frenzy could not last, not just TB and John Mc. A decade of future profits was factored into the price paid today. Most thought they were cleverer than the market, and would get out before the fall.

    I’m not sure what regulations are able to prevent this type of illogical, avaricious market behaviour.

  112. And the solution is…???

  113. Tom

    I agree, however was there any news that made our market decline today or is it just simply more of the same.

  114. Shane, a profit warning from the Bank of Scotland…I’m sure the players are buying and when the sharemarket makes a slight recovery they will offload them again.

  115. thanks scaper, a profit warning from a bank would do it 🙂

  116. ‘And the solution is?’

    Why would anyone imagine that the solution to the global economic crisis would be found here?

    Understanding of the problem is the first requirement. Odd.

  117. Sorry Shane

    Scaper’s got it covered.

    Tom

    TB and I were far from being lone predictors and as far as solutions go, no you won’t find them here. A global response and a new understanding how these systems really work would be a good start, in my opinion.

  118. Tom

    I came across this just recently:

    Peter Schiff Was Right 2006 – 2007 (2nd Edition)
    http://au.youtube.com/watch?v=2I0QN-FYkpw

  119. Tom, no of course the solution to the problem isn’t to be found here. However I do believe that there are some exceptionally knowledgable people on this blog and was interested in reading their opinions.

    And I do believe that you do have a comprehensive understanding of the problem and so would like your opinion as to the solution.

    Just asking because this topic isn’t my forte, I’m just trying to learn.

  120. Good on you Min, and you are certainly not afraid to contribute which is what this site is all about.

  121. And by the way, there is no such thing as silly questions only silly statements (when someone dismisses out of hand and with little knowledge the subject under discussion)

    You keep asking and learning Min. By virtue of the fact that you occupy a place on this planet and you see, hear and experience daily the impact economic and financial issues have on our lives, you’re entitled to be here.

  122. “I notice you mention tax money, sounds like the typical catch cry lower taxes, lower taxes, lower taxes, forgetting that a country cannot exist without equitable taxation…

    The privatisation of tax law design in Australia:

    The Rudd Labor Government in Australia is privatising the design of tax law and policy to those who advise big business…

  123. “Past performance should not be regarded as a guide for future outcomes or expectations.”

  124. Reb

    “Past performance should not be regarded as a guide for future outcomes or expectations.”

    I agree, however, the past offers certain indicators that flag future potential trouble. And if that is that case as I believe it to be, this crisis may just eclipse all other crises including 1929.

    ‘Those who fail to learn from the past are doomed to repeat it’, may be a more appropriate guideline where economics is concerned.

  125. Thank you JohhMcP. You are saying almost word for word what my dear mate, the late Matty Price told me. I would never want to let him down.

  126. I don’t think greater market regulation is likely to deliver much of a solution. The market system will always adapt, compromise, look for loopholes.

    A responsibility of government is to seek to protect people from the adverse consequences of market behaviour.

    A starting point is probably introducing a type of “financial prudence” stream into secondary education. Similar to the type of “environmental responsibility” orientation that is currently evident.

    Financial prudence won’t stop the market behaviour, but it will help take the edge off some of the adverse personal consequences. It might help young people understand the pitfalls of the highly leveraged investments.

    So there we have it, not a solution, but an approach that I don’t see on the government agenda at the moment.

  127. And thank you Tom. You are saying, educate young people regarding finance. And that this should be at a far more indepth stream than current (how to count to 20). That accountancy/finance should be taught as a high school subject to prepare young people for the big wide world out there.

    How does the above sound?

  128. I’m not involved in education, so I’ll start with that qualification.

    I don’t think financial prudence is actually taught in accounting or economics. Accounting is more about the mechanics and legality of the financial world, it is less about risk management. Equally, I don’t think economics teaches financial prudence.

    During a period of continuous growth, people seemed to forget personal risk management, how to set themselves up for reduced financial stress over the longer term.

    Personal responsibility and personal risk management are skills that can be taught, and are to a degree, just not in the financial area.

  129. Cool avatar Sparta!

    I’ve read the comments here & have nothing intelligent to add. I have plenty of non-intelligent spittle to bury myself with but I don’t think it’d really be appropriate on this thread.
    Thanks for the insights peoples.

    In summary, generally speaking we’re about f@cked…& noone quite knows how to unf@ck us.
    Sobering…

  130. Min

    “Thank you JohhMcP. You are saying almost word for word what my dear mate, the late Matty Price told me. I would never want to let him down.”

    Matty Price, geez I miss his wit and good nature.

    Tom

    “A responsibility of government is to seek to protect people from the adverse consequences of market behaviour.

    A starting point is probably introducing a type of “financial prudence” stream into secondary education. Similar to the type of “environmental responsibility” orientation that is currently evident.

    Financial prudence won’t stop the market behaviour, but it will help take the edge off some of the adverse personal consequences. It might help young people understand the pitfalls of the highly leveraged investments. ”

    Every effort to stop bubbles growing is worthwhile, hence the reason I’ve stated that the solution will need a mult-faceted approach. You’re spot on with your comments.

  131. Just in from a day out.

    Whew! Some heavy stuff above!

    I agree that the solution is education – but not just in high school as Tom aand Min dicussed – I reckon its across all generations.

    The current crisis is a reflection on how selfish, insulated and ME, ME, we have become as a nation.

    If the Government can run campaigns on other “issues” why not a national campaign on “financial awareness”? Primary up to degree level.

    Sparta/Shane, if China wants to rule the world (a China town in every major city in the world isn’t a coincidence its a massive plan!) – then thanks to Mr Bush, the USA has just dropped its dacks (Oz slang for pants, Sparta) and bent over for the bastards…!

    One thing Aussies won’t do!

    …and as I keep saying, Sparta, what the USA does has had an impact on my life and lifestyle, all my life, and I can’t vote for your President! But it entitles me to call him a wanker…if he is….I just hope the new one has balls AND a brain! BTW nice avatar!

    PS I we didn’t love you Yanks we wouldn’t bother – just ask our brothers over The Trench… 😉

    ………………………………………….

    Hey, JMc, nice return re censorship of your content on the other thread, well writ! But you must get your grammar “right” – 😆

  132. JMc – is that Marty on your avatar! Comedy favourites was on another thread! You fool, Moriarty, even Eccles new that! What? That, you fool! Ha ha! That – I knew that —- didn’t he?

  133. I remember when I was a kid playing Monopoly with my sisters…they used to snap up properties like mad whilst I only invested in a limited quality of property and developed such to hotel status…they did not have many houses due to the fact that they blew their pass go money on procuring as many assets as they could get.

    They thought they could break me but I had put a certain portion of my pass go money away on every circuit to ensure I could pay the rent when landing on their cheap properties with a house or two on them.

    I always won because after two times of landing on my hotels they were broke…this was the foundation of my fiscal policy and I adhere to it to this day.

    Scapette is a good Monopoly player as she’s has got a good tutor.

  134. TB

    I get slooopy someteems with my gramma I no.

    Yes, it’s Marty

  135. Very shrewd scaper.

  136. Scaper – me thinks that the scapette will buy you out soon. And you deserve lots of credit for that.

  137. Monopoly.

    Why not take this discussion to an even higher level and discuss the life lessons learned from Twister.

    About as relevant.

  138. Tom

    How do you think we got in this mess? Yes, it all came about because of Twister. Monolopoly was just too damn hard for Wall St investment bankers to play.

    So they twisted everything in order to securitise them. You name it, they Twisted it.

  139. Always enjoy another chapter in the life and times of scaper and scapette, but why do I feel such a voyeur?

    Monopoly? Twister? Shouldn’t we aspire to Poleconomy?

    Rudd’s war on the middle class:

    “The biggest enemy of “working families” is not the financial crisis. It is the Prime Minister, Kevin Rudd, and his offensive and simplistic suggestion that middle Australia should show restraint in wage negotiations so as not to compromise their jobs.”

  140. TB,

    Hey, I have no problem with people bashing our president (I’ve done my fair share) but I tend to get a little bit sensitive when folks us a blanket statement like “your country” “and “the USA” Especially, when people use the US as a scapegoat to rationalize the stupidity/failures of their own leaders, of which Australia has plenty!

    “Government can only do so much. … we’re going to have to take responsibility — all of us,”.

    BO…..Very fitting on this thread Mr. President, now if we could just get the word out to those that think it is the answer to all……..

    Yes, I understand the animosity out there for our policies but I feel it is a weak man’s argument to constantly trot them out when I touch a sensitive nerve. Neither Shane nor anybody else here from what I can tell, is “weak” in making their points so I would just prefer we stick to the topic at hand instead of regressing into the same old “I am rubber you are glue, bit”.

    Will he use both wisely is what I am wondering……..

  141. Kittylitter, like it or not, wages are one of the few variable costs for many businesses.

    It seems a reasonable time for exercising wage restraint. Petrol is around 50c per litre less, mortgage payments have fallen with interest rate reductions. Inflation is abating.

    In these circumstances, why not exercise restraint??

  142. In these circumstances, why not exercise restraint??

    Indeed Tom, restraint all round, employers and employees have to work together through this as best they can – I’m hoping many business can drop their profit expectations in the short term in favour of the long term benefits that go with having a committed and loyal workforce.

    BHP Billiton, Rio Tinto to cut thousands of jobs
    http://www.news.com.au/dailytelegraph/story/0,22049,24942288-5014099,00.html
    * BHP to axe more than 2000 WA workers
    * Part of 6000 job cuts worldwide
    * Job losses: Rio Tinto Alcan to cut 1100 jobs

    Consumer sentiment falls despite economic stimulus package
    http://www.news.com.au/dailytelegraph/story/0,22049,24942316-5014099,00.html
    CONSUMER sentiment fell in January with the federal government’s fiscal stimulus package failing to sustain a recovery in confidence amid worries about the economy

  143. Tom of Melbourne.

    Problem with wage restraint is that business and conservative politics crys out for restraint in good and bad economic cycles.

    As an employee of a large business for 23 years I experienced it all and as I was promoted had to be one of those who stood up and told propoganda to the masses (a bitter pill to swallow).

    Bad Cycle -to the masses ” We need restraint to save the business and jobs”. Reality is CEO and Management get stealth pay rises by way of share options.

    Good Cycle – “We need to exercise wage restraint as we are in a competitive maket with growth of our competitors a threat to our business long term survival strategy and market share”. Reality is CEO and Management receive 50% or more pay rises per annum due to the growth in share price and profits. They also receive up to 1.5 million shares, plus many millions in options.

    Wage restraint yes, but only when the same rules apply to all and not just the poor bastard digging the dirt, serving the customer or copping the abuse for lack of services.

    Business in the USA badgered George Bush for 8 years, and so even thought there were boom economic times for 6 of his 8 years the minimum wage did not increase by 1c under his rule until the democrats got control of the senate in 2006 and forced an increase linking it to his funding of the Iraq War. If he wanted his war mongering money he had to give the poor an increase.

  144. Shane

    “Business in the USA badgered George Bush for 8 years, and so even thought there were boom economic times for 6 of his 8 years the minimum wage did not increase by 1c under his rule until the democrats got control of the senate in 2006 and forced an increase linking it to his funding of the Iraq War. If he wanted his war mongering money he had to give the poor an increase.”

    Actually you’ve hit on one of the biggest failures the ‘free-market’ has ever produced. A bit like the intention of WorkChoices, a race to the bottom.

  145. Here’s where a major problem is going to be, few realise that our own banking sector has not been sufficient to meet all of our business lending needs over the boom years and now foreign investors are fleeing to safety.

    “Mr Rudd expressed alarm in a speech in Adelaide that around $75 billion in foreign loans would fall due in the next two years.”

    http://business.smh.com.au/business/tough-year-ahead-for-ceos-20090121-7m4s.html

  146. It’s not at all surprising that Kevin has been forced to face a harsh reality.

    PM warns crisis will hit Australian jobs
    January 21, 2009 – 1:09PM
    https://blogocrats.wordpress.com/2009/01/17/capitalism-didnt-cause-crisis-turnbull/#comment-16549
    Economic growth will slow and unemployment will rise, but the government will be “up front” with Australians about how they will be affected by the financial crisis, Prime Minister Kevin Rudd says.

    BHP Billiton on Wednesday said it would cut more than 3,000 local jobs after deciding to shed 6,000 positions worldwide, while leading retailer Harvey Norman also forecast a series of job cuts.

    Mr Rudd said the global financial crisis would affect Australian jobs.

    “The government has been up front about the fact that Australians will be affected, growth will slow, unemployment will rise given the deteriorating global outlook,” Mr Rudd told reporters in Sydney.

    “Already we’ve seen job cuts at many Australian major corporations. We know that many small business are also finding it tough to keep their staff employed.”

    “In the coming year, it’s jobs that matter the most.”

    The prime minister said he intended to be “up front about the impacts of the global financial crisis on this economy”.

    “I intend to be up front with the Australian nation about what we are doing and what we can do about it,” he said.

  147. Jesus! I only just picked up on this bomb:

    Australian Discount Retail (ADR) has collaped with debts of almost $100 million, leaving 2700 full-time staff facing an uncertain future.

  148. Plus Harvey Norman is heading down the tube. However they were always hugely overpriced in my opinion and trying to cater to those thinking that ‘a name’ equals quality. A failure to adapt to the times eg online shopping.

  149. And maybe Harvey Norman suffered because of Gerry’s stupid comment about charity.

    I certainly have not bought anything from HN since then – then again, I never shop there so maybe my boycott had no effect.

  150. You could well be right there joni. I can’t see where Harvey Normans have ever been a particular part of the community which compares with many retailers who regularly contribute to worthwhile causes such as the Westpac Helicopter to name but one.

  151. Probably too many people have been burnt by HN’s easy credit facilities too.

    I agree Min – they are grossly over-priced compared to other shops like JB Hi-Fi and Sony Central, and their staff know jack-shit about the products they’re selling…

    doomed…doooomed….DOOMED!!!

  152. Tom, why isn’t it reasonable for the companies to accept less profit, rather than expect workers firstly, and taxpayers (workers paying twice over) secondly, to keep the companies profit margin?

    After all, this crisis of profitability was not caused by workers.

    The Australian economy – from steak to sausages

    …In essence the ACTU wants workers to accept reduced hours (with a pro rata reduction in pay) to “save” jobs. I have an alternative suggestion. Cut the working week to 30 hours without any loss of pay. That spreads employment further around and increases workers’ purchasing power thus increasing aggregate demand. Workers will be able to buy more goods. I wonder why this isn’t part of Labor’s stimulus package? Oh, because that might impact on the profits of some individual companies and industries?…

    …Wages haven’t caused this crisis. According to the Australian Bureau of Statistics the wages share of national income is now 52.4 per cent – the lowest figure in over 40 years. The profit share of national income is 28.4 per cent – the highest level since figures have been kept.

  153. Of interest is that the Department of Defence is transfering casual ITs to full time jobs with the most excellent reason being that ‘outsiders’ do not understand the stressors for defence personnel.

    I believe that it means jobs are to go, but as above a transfer from casual to full time sounds good.

    Which gets us back to eons ago re the casualisation of the work force.

  154. Kittylitter, owners, managers, business leaders always get the economy into trouble. And a problem is that in doing so, the consequences of their poor decisions affect workers and the economy. The consequences can never be confined to those that make the decisions.

    Profits will be protected, and wages are a variable cost.

    That’s the way of the world.

    Therefore, it is irresponsible to seek wage increases when the cost pressures on families are significantly abating through lower fuel costs and much lower housing/mortgage costs.

  155. The consequences can never be confined to those that make the decisions.

    Not when everyone rushes to protect them from their own neglect and irresponsibility. So why would it be irresponsible of workers to seek proper renumeration for their efforts, yet already irresponsible business gets a bail out from everyone and profits are protected?

    If they can’t and won’t accept the consequences, maybe it’s time they were stopped from making the decisions.

  156. Tom of Melbourne

    “Irresponsible to seek wage increases when cost pressures on families are significantly abating”

    What about food costs, rental costs, insurance costs, electricity costs, telephone costs.

    You selectively picked the two things that have dropped over the last 3 months to create a wonderful spin on wage restraint. Bearing in mind that lower mortgage costs only effect those who own their own homes and not renters it does not benefit 50% of the population.

    Sounds like big business spin to me.

  157. scaper

    Seems like Rudd is slowly becoming Crudd. Damn who do I vote for next.

  158. Shane, it’s a worry…they are discussing Gillard taking over from the PM on the mid week thread but from what I know the PM has got the same control as the last PM over his party!

    I will be voting Labor the next election because my local member is a hard working politician who truly represents his electorate…that means he will never sit on the front bench!

  159. Woops!

    The impeachment thread…LOL!

  160. Kittylitter – the reason that businesses and business leaders are not left to suffer the consequences of theor poor diecisions is simple. Businesses employ people, and when they close, people stop being employed.

    If there is a lesson from the crash of 29, it is that governments have to intervene. It was the failure of governments to intervene that caused the economic collapse, not simply the crash of share prices. Governments now know that bansks have to maintain lending, businesses have to continue to operate.

    Otherwise even more people are thrown out of work.

    Shane, hardly big business spin. Fuel prices flow through to all the factors you mentioned. Inflation has abated. It is no longer on the radar!!

  161. scaper, I think that the topic was that the PM is lacking gumption regarding more difficult issues. I suggested that he has until say November this year to pull his socks up.

  162. Min, the PM is too popular in the polls at the moment although it is slowly falling and with Turnbull at the helm in opposition I just do not see it.

    If it did happen by chance it might just be Tanner…you never know.

  163. What about Frank Sartor?

  164. True scaper. However I am beginning to get a feeling of impatience viz the Australian public. I think that people are wanting ‘a grand statement’ and that it should happen within the 1st 8 months of this year.

    I wouldn’t be unhappy with Tanner as PM.

  165. joni, on January 21st, 2009 at 5:02 pm Said:
    What about Frank Sartor?

    Joni, you said that on purpose didn’t you. It (almost) makes me tempted to run again.

  166. I’ve been going through the comments and would like to thank everyone for some really excellent contributions.

  167. Thanks Min for reminding me that it’s all about learning and that everyone should be welcome to join in on these type of topic simply because they think they lack the knowledge. If in doubt, ask questions?

  168. JMcP….best avatar EVER, you devil you.

  169. Tom

    Yes businesses do employ people.

    The thing is 20 years ago the bosses of business were happy to earn 20 times more than their employees and ensure their employees were looked after. It was a much fairer equation.

    These days the bosses earn over 260 times their employees salary and want to stop any form of salary equity.

    I have never ever yet seen prices go down as a result of fuel prices being reduced. I have seen them go up but never seen them reduced. I have only seen them reduced because they have been sent off shore and made in China. Or assembled in Australia from components made in China.

    Please list to me the items that have reduced in cost as a result of petrol prices going down.

    “Inflation has abated”, Once again this is a concocted figure that is irrelevant unless the actual items are used by the individual. I have referred to this spin on figures used by governments on many occasions by providing the proof via website link.

    Same as rentals, rents go up because interest rates are blamed for costing the landlord more. Rates have dropped by almost 3% yet rents continue to rise at massive rates each and every 6 months when leases are renewed. Once again a con job.

    Look past statistics and figures to the reality of those effected most.

  170. My frustration with, & willful ignorance of, matters economic is being gradually whittled away as I read these (droll but informative) economic threads.
    I appreciate the education.

    No amount of pontificating will save those who are too deeply reliant upon the system of cattle harvesting.

  171. Tom of Melbourne, on January 21st, 2009 at 3:42 pm Said:

    Therefore, it is irresponsible to seek wage increases when the cost pressures on families are significantly abating through lower fuel costs and much lower housing/mortgage costs.

    Yet according to business it is never a good time to seek wage increases, even if their profits are booming they rarely pass this onto their employees but instead fight every request for pay rises tooth and nail whilst lining their pockets.

  172. “Yet according to business it is never a good time to seek wage increases, even if their profits are booming they rarely pass this onto their employees but instead fight every request for pay rises tooth and nail whilst lining their pockets.”Adrian

    IMHO that’s where Tom’s (at face value) very reasonable logic falls down.

  173. Adrian and Toilet

    I said exactly the same thing @11.38am regarding never a good time for a pay rise.

  174. Yes just read it Shane.

  175. None of my guys are asking for a pay rise as they got a 10% pay increase a couple of weeks ago.

    The new guy that is starting tomorrow was earning 15K less than what I’m paying in his old job which is the same duties.

    His ex employer has a staff of twelve…multiplied by 15K=GREED!

  176. Adrian

    Sometimes people cannot see past ideology, they think I am a socialist becuase I have social beliefs for our community, yet I own and operate my own small business.

    What I do see is the massive shift in total wealth and the loss of the middle class in both our the UK and the US. This is what destroys an economy as the masses can no longer afford goods and services to keep the economoy ticking along.

    Yes businesses do employ people but businesses exist by employed people buying what they sell or service. Business forgets this side of the equation.

  177. IMHO that’s where Tom’s (at face value) very reasonable logic falls down.

    Add the collusion of govt. with business at great cost to workers and their right to better their wages and conditions.
    Why is it that workers are the only ones asked to display the spirit of altruism here? Have CEO’s capped their wages recently?

    We are already getting the catch cries ‘wage restraint, means more jobs, work longer and harder than ever before for even less’, all for the good of corporate Australia.

    Don’t forget in the middle of the mining boom boost to the economy, business and government were colluding to force WorkChoices upon workers – and we still have much of it, thanks to Labor.

  178. scaper

    Amazing you can do that yet mega wealthy enterprises cannot give their guys a 4% pay rise.

    Something stinks in management land.

  179. Shane, I lifted my rates bt 11% so it was not hard…a happy worker is a productive worker.

    It’s funny…I see these new business in my industry starting up with the new this and shiny that but they seem to disappear in the first six months…not good Monopoly players I reckon…LOL!

  180. Kittylitter

    We are in synch on that.
    Problem is that enough of a majority of voters are intellectual pygmies who are so easily manipulated into voting against their own best interests by the corporatocracy with nifty, divisive gems like “abortion”, “gay marriage”, “racial dog whistling”, “let’s have a war” etc….in the meantime taking their eye off of the ball while being coralled by the interests of “business”.

    The obvious moral issues of the day are efficiently used as political & societal wedges that keep the real problems (collectively inflating the ruling minority)
    from being addressed.
    So it is, so shall it ever be.

    I am not a communist, or any other rigid ideological devotee…but there is much to be said for the benefits of a little educated, & flexible, socialism.

  181. I’m not a particularly mean spirited individual. Successful businesses should pay high wages and salaries to attract and retain the best people, that’s one of the main reason that they are successful.

    The issue is that in the current decline, wages are a variable cost, labour costs will be reduced in response to the decline.

    Businesses will target specific labour savings, and higher wages will simply result in the targeted savings being achieved by a reduction in headcount.

    That’s how businesses operate.

    It is also incorrect to suggest that businesses always say “no” to wage increases. During the past few years we have had record low levels of industrial disputation, yet many industries have made wages settlements of 5%, 6%, even 7% without disputation. Many/most businesses haven’t resisted high settlements to retain their skill base.

    The generalisations of Adrian, Shane, Kittylitter etc are not accurate.

  182. “The generalisations of Adrian, Shane, Kittylitter etc are not accurate”Tom

    Perhaps not “entirely” accurate, but the same could be applied to your own observations here Tom.
    Having said that I have seen this…

    “The issue is that in the current decline, wages are a variable cost, labour costs will be reduced in response to the decline.

    Businesses will target specific labour savings, and higher wages will simply result in the targeted savings being achieved by a reduction in headcount.”…

    …borne out in every company I’ve ever worked for. You are certainly correct about the way that the real world operates, rather than the ideological imperative that may perhaps be fairer.
    I find your overview strikingly accurate Tom, but objectionable nonetheless.

  183. Tom

    “The issue is that in the current decline, wages are a variable cost, labour costs will be reduced in response to the decline.

    Businesses will target specific labour savings, and higher wages will simply result in the targeted savings being achieved by a reduction in headcount.

    That’s how businesses operate.”

    As a former labour analyst for a multi-national you’re putting forward a view that is often hard for many to digest comfortably. Labour costs is one area where companies have a degree of control over. When economic conditions change so do labour requirements.

  184. Let me rephrase:

    As a former labour analyst for a multi-national myself, I understand you’re putting forward a view that is often hard for many to digest comfortably. Labour costs is one area where companies have a degree of control over. When economic conditions change so do labour requirements.

  185. Toiletboss, on January 21st, 2009 at 5:44 pm Said:

    JMcP….best avatar EVER, you devil you.

    I’ve finally found one I’m happy with.

  186. That’s right John. Many people don’t seem to realise that companies book their profits each year and profits in past years have little bearing on current financial performance and decisions. Business executives are required to earn profits for their owners in all economic conditions.

    Wages, salaries and all variable expenditure will come under harsh review during economic downturn. Wage increases are justified in profitable companies, but in those that are loosing money, job losses will result.

  187. Tom

    “Wages, salaries and all variable expenditure will come under harsh review during economic downturn. Wage increases are justified in profitable companies, but in those that are loosing money, job losses will result.”

    Actually it’s much the same view I’ve been working off in assessing the potential for significant increases in unemployment.

    It’s a bitter pill but it’s reality. It’s not being negative it’s simply acknowledging economic reality.

    I sometimes get accused of being a ‘doom and gloomer’, however, everything I’ve called thus far has been based on a combination of theory, experience and everyday observations – separating emotion from the equation is what most people struggle with and frankly, I can’t blame them given what is happening.

    I think what you have to say is sound even if I don’t like, nor do I think you enjoy having to say it. I know I don’t.

    Cheers

  188. Storm’s high risk margin loan strategy highlights the insanity that has come to an abrupt and painful end for many unsuspecting investors (speculators may be a better term to use). And Storm’s chiefs may have been drunk at the wheel but ASIC were just as drunk, if not drunker.

    Storm chiefs ‘drunk at the wheel’
    http://business.smh.com.au/business/storm-chiefs-drunk-at-the-wheel-20090121-7mda.html

    A lawyer for more than 350 clients of collapsed investment advisory service Storm Financial says the greed of the company and the banks saw hundreds lose the fruits of their life’s work.

    The lawyer’s comments came as a senator called for an inquiry into the role of banks in the current financial crisis.

    Many investors face losing their homes after Townsville-based Storm Financial went into administration earlier this month.

    Investors were encouraged to take out high-risk margin loans to buy shares, which have now fallen in value.

    Damian Scattini, of the law firm Slater & Gordon, took aim at finance industry players, accusing them of being “drunk at the wheel” as the crisis grew.

    ASIC gave `clean bill of health’ to Storm

    http://business.smh.com.au/business/asic-gave-clean-bill-of-health-to-storm-20090116-7j4d.html

    THE Australian Securities and Investments Commission failed to act on complaints about Storm Financial Group last year before the high-risk advisory house collapsed.

    It is understood ASIC fielded complaints as early as the 1990s about companies associated with Storm’s founder, Emmanuel Cassimatis, then again after the dotcom boom that decade, from clients who had sustained heavy losses from investing in leveraged global equities funds.

  189. Tom

    Can you please list the industries that settled 6% and 7% pay rises for their mainstream workers as I know of none.

    I know of those that have settled between 0% and 3.5% for their mainstream workers.

    I understand your comments regararding variables and wages being one of them, however why is it the workers that suffer and not the board or CEO ?. Thats my argument, no doubt you have read the change in salaries of workers and CEOs which I posted earlier. It is this massive shift that has stuffed our economic position and it stems purely from greed.

  190. I’ve tried to post the following a couple of times –

    Shane, I think if you look at some ABS data you’ll find evidence, eg –

    http://www.abs.gov.au/AUSSTATS/abs@.nsf/Lookup/6302.0Main+Features1Aug%202008?OpenDocument

    For example full time private sector earnings increased by 5% in the year to Aug 08. The public sector had plenty of belt tightening though – 3.1%

    Various former public sector instrumentalities – though not Telstra obviously – had quite high settlements. Also mining and construction, where skills were short and profits high, had high outcomes.

    The point is that the generalisation you and others made is inaccurate.

    I’m not seeking to defend the high levels of executive remuneration. Though I’m sure we will see a significant decline during the next couple of years.

  191. Tom

    The problem with these statistics is that they also include all of the top management and CEO wage increases.

    Example. company has 102 employees. 2 of those employees are CEOs who receive a 50% pay rise. 10 are managers who receive a 20% payrise and 90 are workers who receive a 3% payrise. The average of the companys pay increase is 5.59% yet 88% of the employees received 53% less than the average company wage increase at 3%.

    Figures are smoke and mirrors.

  192. Just got this via email >made me laugh.

    NEW STOCK MARKET TERMS for 2008 and beyond.

    CEO –Chief Embezzlement Officer.

    CFO– Corporate Fraud Officer.

    BULL MARKET — A random market movement causing an investor to mistake himself for a financial genius.

    BEAR MARKET — A 6 to 18 month period when the kids get no allowance, the wife gets no jewelry, and the husband gets no sex.

    VALUE INVESTING — The art of buying low and selling lower.

    P/E RATIO — The percentage of investors wetting their pants as the market keeps crashing.

    STANDARD & POOR — Your life in a nutshell.

    STOCK ANALYST — Idiot who just downgraded your stock.

    STOCK SPLIT — When your ex-wife and her lawyer split your assets equally between themselves.

    FINANCIAL PLANNER — A guy whose phone has been disconnected.

    MARKET CORRECTION — The day after you buy stocks.

    CASH FLOW– The movement your money makes as it disappears down the toilet.

    YAHOO — What you yell after selling it to some poor sucker for $240 per share.

    WINDOWS — What you jump out of when you’re the sucker who bought Yahoo at $240 per share.

    INSTITUTIONAL INVESTOR — Past year investor who’s now locked up in a nuthouse.

    PROFIT — An archaic word no longer in use.

  193. The problem with these statistics is that they also include all of the top management and CEO wage increases.

    Finally! Thank you shane for pointing out how the big earners skew the figures.

  194. kitty

    I keep pointing it out, but some are simply blind to facts, and prefer to use statistics averaged by government departments or big business to achieve their own ideology which is exactly the reason the figures are issued by the businesses in the first place.

    If they want to be real about pay rises then remove the top 10% and the bottom 10% and then give us the true average for the 80% of normal workers.

    A classis example. My previous employer asked all of its employees to complete a survey on almost everything in the Bank, their likes, their dislikes, what can be improved and what should be thrown out all together. It was around 14 pages long with multiple choice answers. You were anonymous (only you had to put the state, and area you worked in and your age, and sex, which makes you identifiable). The promise was made to print all results warts and all for the improvement of the company and staff relations.

    Well many months later we were still waiting being told that the results were being finalised. Many more months pass with no mention. Then after almost 2 years they decide that the figures will not be released as they are no longer reflective of the corporation. In other words the figures were a shocking wake up call to management who could not possibly publish statistics that are negative or had any warts to their perception of staff morale and issues.

  195. Shane, I don’t wish to be overly picky, but the data I referred you to related to earnings excluding bonuses etc.

    The growth in earnings for executives has been in the package structure – bonuses & incentives and share options.

    There is ABS data about actual settlements that also illustrates my point, and I’ll send it through when I get a chance.

  196. Tom

    while not doubting you I cannot see where it states these things are excluded.

    Item numbers 1,3,8,19 and 21 are interesting in the notes on the data here

    http://www.abs.gov.au/AUSSTATS/abs@.nsf/Lookup/6302.0Explanatory%20Notes2Aug%202008?OpenDocument

    You state that this only relates to earnings excluding bonuses and share options. 1 example for you is the CBA annual results for 2008 which saw a major shift in packages to a much larger cash component of salary and major reduction in salary sacrifice to super. Do you think they knew something.

    The following is the increase in their CASH ONLY FIXED component to 30 June 2008 which will reflect in the ABS statistics as it is fixed and paid in cash. Non Executive Directors Increase 31% CEO Increase 113% Executives Increase 26%.

    This is only 1 company.

  197. Tom want some more examples try these with Telstra and the cash component increases.

    http://www.australianit.news.com.au/story/0,24897,24947138-5013038,00.html

    http://www.australianit.news.com.au/story/0,24897,24947242-15335,00.html?referrer=email

    What an absolute disgrace and now they are fleeing back to the US enmasse after getting unbelievable pay increases for their 3 years which caused a devaluation of telstra of 20 billion.

  198. Shane

    What is it with politicians and big business, why is there such a significant gap in understanding between the two?

    Firstly, the Howard Government allowed Telstra to become run down and since my opinion was published in the Australian, Sol and his amigos have done everything in their power to rip the heart out of the once iconic company

    A case of hear no evil, see no evil

    http://www.australianit.news.com.au/story/0,24897,20201956-15425,00.html

    HERE’S something to really amuse Telstra shareholders. Back in June 1999, The Weekend Australian ran a piece under the headline “Why Telstra’s a Real Humdinger”.
    “The growth premium you are being asked to pay for Telstra now does not take into account any of the goodies in the pipeline that are likely to start appearing over the next couple of years.” That was a huge sales pitch and was always going to be an impossible task.

    As a majority shareholder and regulator, the federal Government has an interest in selling its shares at a premium price and an obligation to ensure the telco functions and will continue to function properly. Given the Government has so much of our money invested in the telco, it should have been monitoring our investment much more closely. Mr Trujillo and his team have attempted to reveal the true operational state of the telco, something that has been conveniently ignored. The PM admits he was aware the share price was being propped up by redirecting profits to shareholders as dividends instead of reinvesting in operational requirements. Mr Costello heard rumours but ignored them because, he claims, it was not his area of responsibility. What I think we have here is a case of hear no evil, see no evil, and that is what’s hurting investors. .

  199. John

    I waited 3 hours on the phone two weeks ago to convert my dial up to broadband. I rang yesterday to see how it was going and was told the order was cancelled as I could in fact not get broadband at my home addres. No call to tell me just everything cancelled.

    Rang my mate who can do things for telstra and get a commision, he told me to apply for wireless and he would do it for me online. Took five mins and he told me to ring and quote this telstra number to identify myself to confirm i wanted the order.

    I rang Telstra and the girl could not find me. I offered to give her the reference number my mate quoted but no she wanted by old phone number form 4 years ago which no longer has anything to do with my internet.

    She could not find me and the ysytem she was using did not recognisse the reference. She had to trasfer me to another section as they have deen moving to another system for the last 6 months and nothing works.

    I have noghitn but sympathy for the employees as they would have been grilled to never admit anything is wrong but here is what has happened.

    Sol and his amigos have updated telstar to a new platform but the whole shebang is F@#ked. It cannot talk to the old one. Orders are taken on both systems and therfore lost in black holes. Staff are leaving in droves to be replaced by temps with no experience or knowledge who giggle on the other end of the phone tell you all sorts of lies about how its all being processed and you ring up weeks later and there is nothing on the system. The one that answered the phone told me she had been there a wekk and was only trained in limited knowledge of the new system and had no knowledge of the old system. For Gods sake Telstra train your bloody staff. I simply cannot wait until all the amigos have left our shores.

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