GFC – who’s to blame

On March 29 Radio National’s Background Briefing program had a very interesting program on how “they’re beginning to say that narcissists with Harvard MBAs killed Wall Street”.

Something happened to management culture decades ago and now being a Master of Business Administration, especially from Harvard, is rather on the nose. MBA, it’s being said, can also stand for ‘Mediocre but Arrogant’, or ‘Management by Accident’

The show had interviews with professors from the major business schools who have been warning of the problems of managers who only have MBA’s and no “domain knowledge” of the companies that they manage. The current set of managers no longer value “quality over profit” – they have the view that they think that they “actually have to be compensated to do the job I was hired for, and on top of that you have to bribe me with stock options to make sure I do that job. In no other occupation or profession is that part of the modus operandi.”

Gee – I wonder if that is where part of the greed and bad decisions actually stemed from?

If you don’t possess ‘domain knowledge’, how do you run a company? Well, you do it through the accounting department… So first of all, you find the manipulation of the events underlying the figures to achieve the right figures and then you have of course the manipulation of the figures ending up in fraud. So the characteristic of the new age of management as a profession, is improving the numbers, not improving the product.

Hopefully management might realise that they actually have a social responsibility, instead of their greed for bigger and bigger profits. The whole show is worth listening too (or reading the transcript).

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110 Responses

  1. I tend to agree:

    Property bubble ‘set to burst’
    http://business.theage.com.au/business/property-bubble-set-to-burst-20090430-aoyd.html

    “First home buyers are leaping aboard a sinking ship, with house prices set to fall about 20 per cent in the next two years,” reports Natalie Craig in today’s Age. Professor Quintin Grafton of Australian National University makes a point we’ve banged on about here before: prices can’t grow infinitely higher than incomes.

    “I wouldn’t be surprised if overall we get a 20 per cent decline in nominal house prices over about the next two years,” Grafton says. “First home buyers who don’t have much of a deposit and can barely afford their mortgage payments on the current interest rates, they’ll be in trouble.”

    “Ultimately,” he says, “house prices have to be related to the ordinary prices that we pay for other goods and services and our incomes. In the past decade, house prices have gone up about 50 per cent in terms of that ratio. That is not sustainable, and certainly won’t be sustainable as the recession bites.”

  2. John McPhilbin, on May 1st, 2009 at 12:59 pm Said:

    For Gods sake John………………………..The “Professor” quoted is a bloody Water and Fisheries economist.

    Who are you going to wheel out next ?

  3. Now………….insofar as the actual thread topic (what does it have to do with property prices I don’t know) I would say that most Harvard et al graduates do not know how to run a business and rely completely on knowledable underlings to actually run the business. The MBA graduate just stares at the bigger picture and yes that means the bottom line.

    We can see that in the case of NSW Government. People with no experience in certain areas ( who are just political appointees) are being appointed to positions paying 2 or $300,000. They rely on the experienced public servants to help them survive but cant make effective decisions anyway

    However if audit committees are truly independent then there should be very little opportunity to manipulate result due to internal audit teams hovering in the background.

    But if that does breakdown (e.g. ABC Learning) then………. Yes ……..we have a massive problem.

  4. Ok, it’s all becoming clear now. I now blame the accountants.

  5. I Am The Walrus, on May 1st, 2009 at 1:13 pm Said:

    John McPhilbin, on May 1st, 2009 at 12:59 pm Said:

    For Gods sake John………………………..The “Professor” quoted is a bloody Water and Fisheries economist.

    Who are you going to wheel out next ?

    I simply said “I tend to agree” Nothing more, nothing less.

  6. Tony, on May 1st, 2009 at 1:31 pm Said

    To an extent you are correct as Risk Evaluation Committees (largely made up of people who studied accountancy at Uni but may have also majored in economics) were clearly disfunctional within the Banks in order for vast amounts to be lent to people who could never repay

    Paradoxically most of these “accountants” are not CAs or even those of lesser integrity………………….cough…………….CPAs.

    These people are kinda like a taxi driver with a Bachelor of Law, but no practical experience, calling themself a lawyer.

  7. Walrus

    Lax lending by banks and non-bank lenders + inflated housing prices has everything to do with the GFC. Huge bonuses, bottom line and short-term thinking no doubt fueled the enthusiasm of senior executives.

  8. John McPhilbin, on May 1st, 2009 at 1:35 pm Said:

    Yes John…………..but we are not talking about property prices. Property prices rising or falling are a consequence of GFC

  9. “Lax lending by banks and non-bank lenders…………”

    John McPhilbin, on May 1st, 2009 at 1:39 pm Said:

    Yes………..that’s what I said !

  10. 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.”

    We’ve followed a similar track as far as incentives go.

  11. The whole point of the show (if I interpreted correctly) is that it is not the managers or accounts as such, but the fact that they do not have any “domain knowledge”. They know that their companies make widgets at cost X, but have no real understanding of how that widget gets made. And so they believe that by reducing the cost they can then make bigger and bigger profits, not understanding that quality will suffer in the rush to get bigger profits.

    In the olden time of yore, senior management were those who had been with the company for years and years and who work on the shop floor, who understood how the widgets were made.

    Sort of like outsourcing of help desks and programming, it might be cheaper in unit costs, but the loss in “domain knowledge” will come back to bite you later.

    But all the current crop of managers (MBA’s) care about are short term gains – because that is what drives their bonuses. When things go wrong in the future they will be long gone with their hoard of silver.

  12. I Am The Walrus, on May 1st, 2009 at 1:41 pm Said:

    “Lax lending by banks and non-bank lenders…………”

    John McPhilbin, on May 1st, 2009 at 1:39 pm Said:

    Yes………..that’s what I said !

    Well, good for you Walrus

  13. On the subject of predators, this is a nasty situation for anyone to be in:

    Desperate borrowers lose beds to ‘predatory’ payday loans
    http://www.news.com.au/dailytelegraph/money/story/0,26860,25404101-5015795,00.html
    * High-interest payday loans in demand
    * ‘Fringe lenders preying on unemployed’
    * Jobless turn to pawn shops

    BORROWERS are losing beds, TVs and washing machines after taking out short-term, high-interest “payday loans” they cannot afford to repay, say consumer advocates.

    The desperate use of household items as collateral for so-called “predatory” loans – which can charge rates of more than 40 per cent per annum – comes at time of increasing debt and unemployment levels, and as new figures show the number of personal bankruptcies in Australia rose to a near-record high of 7164 in the first quarter of the year.

    Payday lenders say they provide an essential service to borrowers in need. Critics charge they are taking advantage of the vulnerable.

    “I’ve got people under threat right this minute of losing their bed,” said principle solicitor of the NSW Consumer Credit Legal Centre Katherine Lane.

    “I spend all day talking to people who are crying.”

  14. The idea that a good executive/manager doesn’t need content is alive and well in public administration across Australia. Indeed the Senior Executive Service (SES) operates on that very understanding. Thus we have those with a professional background in ‘health’ for example being transferred to positions in Corrective Services or Education or whatever.

    There are several problems with the approach. First, those without the ‘professional’ background lack knowledge of the culture as found in the ‘commonsense’ assumptions which drive all professions. The management culture simply doesn’t wash with professional groups such as doctors, nurses or teachers who can see what needs to be done and have little or no sympathy with the management argument that there is insufficient funds.

    Second. the ‘outsider’ is always faced with a credibility problem with the professionals (who are supposed to be managed and led) because they have little or no respect for those who have never ‘walked in their shoes’. It’s a problem Ministers face as well when they talk to professionals about what needs to be changed or improved.

    All in all ‘content’ free managers rarely do well, particularly in the leadership stakes.

  15. John McP

    I simply said “I tend to agree” Nothing more, nothing less.

    You’re not a politician are you John?

  16. I’ll stay out of the blame game as the PM does enough of that!

    Let’s have a look at this crisis at this juncture?

    This government has increased the FHOG to maintain the artificial high price of real estate, shovelled bucketloads of money into the pockets of Australians, most did not need it, moved to protect the banks that are screwing the borrowers still…so what lessons have been learnt???

    The way I see it the culture of greed is alive and well as no lessons have been learnt so the system that failed us will lick its wounds and re-emerge to kick the people in the guts in a decade or so!

    It’s the two step forward, three step backward routine that eats into our consciousness that is slowly destroying our society, albeit in a multi generational sense.

    This cycle should of been broken on our watch rather than be passed onto the future generation but that required tough love on the government’s part…they failed us!

    I said before this mess was evident to let the system crash so a new, better model could ensue but that window has closed, I was willing to take the pain in the name of a better society and more importantly, a better and stronger nation.

    I want to live in a society, not an economy!

  17. Bargains galore…………………………just a rather long swim away.

    http://zetabid.com/

  18. I think John makes a very valid point; a central part of the fun of the GFC was/is ‘financial innovation’ which involved no actual product or domain knowledge other than the re-packaging of faulty domain knowledge as a product. And if anyone hasn’t learned why such a fraudulent product is the quintessential signature of blameworthiness, then they won’t be getting their pMBA from the GFCU diploma mill!

  19. Here’s a challenge…anyone here want to discuss this link without playing the man???

    http://tv.nationalreview.com/uncommonknowledge/post/?q=Nzc3ZTdkOWE0NzVmMmUwZGQwNDdhNjMwODJlNmY5Y2M=

  20. scaper…, on May 1st, 2009 at 4:09 pm

    I’d love to Scaper, but I took Teh Man’s saying he’d never say another word about anything after his electoral defeat as a core promise by him, and I’m happy to keep that promise for him, even if he’s forgotten it so, so, so, so many times, by simply switching him off if he even so much as looks like he’s likely to break it. 😉

  21. Sorry, not possible scaper. The guy has lost credibility and as such, it makes it impossible to take any “assumptions” or claims he makes at face value.

    I don’t have the energy or time today to research any / all claims he makes in the linked video. I’m going camping this weekend, so have too much “productive” stuff to do before leaving!

    (And yet, here I am, posting on the blog…)

  22. If you wanna be really simplistic about it

    If in order to increase our income you or I risk our equity and we fail……………… you or I might lose our house

    If in order to increase his/her income a Wall Street Banker risks our equity and he/she fails………………………. you or I might lose our house

    Its simple really. Their risk taking never threatened the possessions they already owned…………..just ours.

  23. Legion, on May 1st, 2009 at 4:04 pm Said:

    I think John makes a very valid point; a central part of the fun of the GFC was/is ‘financial innovation’ which involved no actual product or domain knowledge other than the re-packaging of faulty domain knowledge as a product

    That’s pretty much it Legion.

    Minsky, for example 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.

    “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

    Ponzi financing spread throughout system and many suspected this was this case but nobody worked to address it. Why end what many bankers and executives saw as an awesome party with plenty of money to be made, mainly for themselves.

    And oddly enough, Galbraith noted a similar pattern in his analysis of the Roaring Twenties and the subsequent crash in 1929:

    The sense of responsibility in the financial community for the community as a whole is not small. It is nearly nil. Perhaps this is inherent. In a community where the primary concern is making money, one of the necessary rules is to live and let live. To speak out against madness may be to ruin those who have succumbed to it. So the wise in Wall Street are nearly always silent. The foolish thus have the field to themselves. None rebukes them.”

    Now, as throughout history, financial capacity and political perspicacity are inversely correlated. Long-run salvation by men of business has never been highly regarded if it means disturbance of orderly life and convenience in the present. So inaction will be advocated in the present even though it means deep trouble in the future. Here, at least equally with communism, lies the threat to capitalism. It is what causes men who know that things are going quite wrong to say that things are fundamentally sound.”

  24. B.T
    # I don’t have the energy or time today to research any / all claims he makes in the linked video. I’m going camping this weekend, so have too much “productive” stuff to do before leaving!

    I have been doing a lot of that lately and i have to say it nice to get away from the doom of it all. I think its the only thing apart from diving keeping me sane(if thats waht you call it).

  25. I don’t know how many times I’ve heard about financial planners recommending certain funds for investment which happened to have the highest fees and the largest commissions for those planners willing to play the game. Now they wonder why nobody trusts them. Gees, I wonder why?

    Financial planners face client exodus
    http://www.news.com.au/dailytelegraph/money/story/0,26860,25412942-5015795,00.html
    FINANCIAL planners have lost 215,000 clients in the past year, according to a survey that paints a bleak picture for the beleaguered industry.

    The Financial Planning Affection study by independent research group CoreData found an estimated 215,000 clients has deserted their planner over the past 12 months, pointing the blame mostly at the poor performance of their investments and the quality of advice from their planner.

    CoreData partner Craig Phillips said another round of desertions was likely since the survey found almost a third of clients who still had “active ongoing advice relationships” with planners said they were “very likely” to cease using an adviser at all.

  26. I’d love to Scaper, but I took Teh Man’s saying he’d never say another word “about anything after his electoral defeat as a core promise by him, and I’m happy to keep that promise for him, even if he’s forgotten it so, so, so, so many times
    Legion, on May 1st, 2009 at 4:40 pm Said:”

    Hay Legion- do you have a reference for this??? My experience of you people is that you make things up and bear false witness.

    I would really like you to show me a reference where Howard said he would not say anything after his electoral defeat.

  27. FINANCIAL planners have lost 215,000 clients in the past year, according to a survey that paints a bleak picture for the beleaguered industry.

    Well, we’ve lost one financial planner. Does that count?

  28. Tony

    Lol, That’s the way – I think it counts.

  29. John, i remeber when i was telling my parents to invest in Queensland and there finacial adviser talked them out of it, that was 8 years ago.

    They wanted a resturant at the sunshine coast for the cost of 250,000 the same palce is over a million due to the sea being its biggest view.

    Advisors are useless unless you have no clue at all and a lot of money to waste.

  30. Absolutely Aqua. Too many in financial planning are more concerned with their own health and wealth ahead of those they try to advise. There needs to be a huge crackdown on the industry. My father went to a planner just to see what they had to say and ended up laughing at them and walking out.

  31. Aqua

    Advisors are useless unless you have no clue at all and a lot of money to waste.

    There’s an old saying that goes “Wall Street is the only place where people turn up in limousines go to get advice from others who ride the subway”.

  32. wish my parents laughed at him, but instead i was only looking at mum when she found out. still no loss just disapointment.

    she was advised to invest in sydneys outback.

    i asked what that ment or was he refering to all of the out cities of sydney.

  33. outer cities

  34. Hi John, how’s things going?

    This downturn will weed out the cowboys, but there will be a few bad apples left…that’s life.

  35. they are so transparent that you’d be better making your own decision

  36. Scaper you have apoint and its worth seeing too.

    Others will just pack up and some might make it. hows your buisness doing in this?

  37. Hi Scaper

    Cowboys there will alway be, just hoping many of them end up where they belong – jail.

    Aqua

    I believe we need to start teaching financial literacy in our schools and thereby improving the odds against people being duped. Regulators haven’t done a very good job of it to date.

  38. A few cancellations and I’m cruising at the moment but I got the guys out there and will actually have to do some work on site next week.

    Oh well, if I take too much time off I tend to suffer ‘cabin fever’.

  39. Scaper

    Oh well, if I take too much time off I tend to suffer ‘cabin fever’.

    Be careful the authorities might decide to quarantine you. It seems every man and his dog are being diagnosed as potential ‘swine flu’ victims’ .

  40. If your ready to invest get ready to loose it. but most arnt. they only see the dollars and thats sad for the people behind the cowboy attitude with there money.

  41. i hope you make it Scaper, id like to see some projects that are not believed in make it. but just some 😉

  42. Keep an eye on the Infrastructure Australia Report.

  43. Legion, on May 1st, 2009 at 4:40 pm Said:”

    Hay Legion

    I am still waiting for the reference that John Howard said he would never say another word after his electoral defeat.

    I am calling you a total and complete liar in the presence of anybody who reads my e-mail.

    Please show me the reference.

    I will continue to believe that you are a total and complete liar until proven otherwise.

  44. To all Leftoids

    Legion said this on May 1st, 2009 at 4:40 pm

    “I’d love to Scaper, but I took Teh Man’s saying he’d never say another word “about anything after his electoral defeat as a core promise by him, and I’m happy to keep that promise for him, even if he’s forgotten it ”

    Can any leftoid show me a link where John Howard said this??

    I have always believed that you people are nothing but liars.

    please prove me wrong.

  45. Hay leftoids I am still waiting. When i first turned up on Tim Dunlops blog you leftoids told me that John howard changed the way unemployment was measured to make himself look better. In particular he introduced the rule that if someone worked for one hour he was classified as unemployed. hence unemployment fell from 8% to 4%

    Turns out it was a complete lie.

    Now Legion has said this

    ““I’d love to Scaper, but I took Teh Man’s saying he’d never say another word “about anything after his electoral defeat as a core promise by him, and I’m happy to keep that promise for him, even if he’s forgotten it ”

    I am calling Legion a total and complete liar like all you leftoids. Human beings who do nothing but tell lies about other people

  46. Neil,

    While not really a ‘leftoid’, I think I can help. Although it doesn’t exactly support Legion’s position, this is the article Tim Dunlop used to link to. The pertinent paragraph says:

    Mr Costello yesterday was conspicuously absent from the Lodge, where Mr Howard told a lunch for his former ministers that it had been a good government that had achieved great things. He said he would be a very quiet ex-prime minister and would not be making a running commentary.

  47. Drop whatever insignificant activities yer losers are currently engaged in, an give moi yer full an undivided attention.

    On behalf of all MBA super stars of management I have instructed my barristers at the Con Extractor and Revolting Chambers to commence punitive action in the NSW Supreme Court against yers – the site itself, an every single individual poster – unless yers immediately remove yer outrageous lies an slurs regardin the so-called “narsisstic” behaviour traits of the big bosses, OK?

    I’m such a noice bloke I givin yer useless cyber bludgers a full 48 hours to cease and desist. Do exactly as I say or I gunna sack 10,000 casual workers first thing Monday mornin, OK?

  48. Well Tony thank you

    Someone at least replied. Thank you for your link.

    So we have a leftoid journalist, Michelle Gratton telling us that “He said he would be a very quiet ex-prime minister and would not be making a running commentary.”

    Thats not what Legion said

    Provided we can believe Gratton, all Howard said was that he would be very quite which he has been. Since he worked 24/7 for 11 years, a 35 hour week would be very quite for him.

    Furthermore Tim Dunlops reference is Michelle Gratton.

    I would not believe anything that witch said. If she had any honesty she should end her articles by saying “brought to you by the ALP, Canberra”

  49. Neil

    Measures of unemployment are not exactly the domain of politicians. You’ve got a point. Here’s an interesting exert from a Gittins article. I tend to view it as fairly accurate.

    Credit where it’s due on unemployment
    http://www.smh.com.au/news/opinion/credit-where-its-due-on-unemployment/2007/02/13/1171128974534.html

    Howard changing the definition of how much work you have to do to be classed as employed?

    It’s surprising how many people do – and how often they say so on talkback radio or get their letters run in newspapers. But their memories are playing them false. It didn’t happen. What people remember, I think, is a ruling that the employment agencies participating in the Job Network could be paid a success fee for getting someone into a job of as little as 15 hours a week.

    Sorry, that’s got nothing to do with who gets counted as unemployed. A lot of people confuse two separate things: who’s on the dole and who counts as unemployed. They’re quite different. You can be unemployed and not eligible for the dole (say, because your spouse has a job) or on the dole and not counted as unemployed (because you do a bit of casual work).

    Some people get confused because, in the old days, we measured unemployment simply as the number of people getting the dole. Since Malcolm Fraser’s day, however, it’s been measured by the Bureau of Statistics conducting a monthly sample survey of about 29,000 households.

    Many of us have heard that people contacted in the survey who’ve worked as little as one hour a week are classed as employed, even though they may just be picking up a few hours casual work while searching for a full-time job.

    That’s true. What’s not true is that this rule was imposed a few years ago by Howard or any other politician. It’s a statistical convention set by the International Labour Organisation in Geneva and hasn’t changed in four decades (that’s actually what’s wrong with it).

    So forget political interference. There hasn’t been any. No, the real objection is that, for reasons of international consistency, the bureau’s definition of unemployment is unrealistically narrow. It understates the true extent of unemployment and has done for many years.

    This is why the bureau has also started measuring under-employment – the number of people who have work, but would like to work more hours if they could. There are at least as many underemployed as there are unemployed.

    The narrow, official definition of unemployment also excludes “discouraged jobseekers” – people who’d like a job, but haven’t been looking for one because they don’t believe there are any. These would include a lot of older, blue-collar men.

    Here’s the point: if you take the officially unemployed and add the underemployed and an estimate of discouraged jobseekers, you get a broad measure of the unemployment rate that’s roughly double the narrow, official rate.

    So, should you believe unemployment’s down to 4.5 per cent? No. A more realistic measure would be nearer 9 or 10 per cent.

    Remember, however, that you have to compare like with like. So if you bump up today’s unemployment rate you have to do the same to the official unemployment rate of almost 11 per cent attained after the recession of the early ’90s.

    In other words, don’t kid yourself there’s been no improvement in unemployment under the Howard Government. There has – and it’s been huge. So, whatever the true figure, is unemployment the best it’s been in 30 years? No, not likely. That’s because the incidence of underemployment is much greater today than it was until the late ’80s.

    Howard and his ministers play so lightly with the truth that some people have stopped believing anything they say. Others refuse to give them credit for any good thing.

    If that’s you, get real. The unemployment position is the best it’s been in many a long day and it’s churlish to deny it.

  50. Yer disgraceful little ppl need to wake up to yerselves quick smart an respect yer superiors, OK? Us MBA-style managers are highly-skilled, flippin professional managers, with a bigger bag of tricks than felix the bloomin cat, OK?

    Fer a local example, just follow the Dark Satanic Mills Association of Australia’s idiot-proof 3 point Instant Management Plan and yer too can pretend to be a high-powered Executive and get $30 million dollars a year to wear a fancy suit an claim all tha flippin credit for other people’s good ideas.

    Step 1. Treat staff mean, so as to keep them keen. Cut pay and conditions wherever and whenever possible.

    Step 2. Remember, at all times, staff are like cockroaches! There are millions more where these shabby cyber bludgers came from, OK? Don’t listen to a word the whingers say.

    Repeat this step as required, OK?.

    Step 3. IF steps one and two have no delivered the required grovelling response from staff – who should by now have got the hint and be offering you sexual and other ‘favours’ – SACK THEM ALL!

    Jest remember, jealous tiny brains, us MBAs have got a process, a flow chart an a PowerPoint presentation fer every bloomin occasion, OK?

    That includes an outrageously defamatory scenario like this one! I’ll be carryin a very big stick when I see yer treacherous mongrels in the NSW Supreme Court, OK?

  51. OK Legion Bwooce. Duly noted.

  52. Yes John Mc Philbin, thank you for that article. i have actually seen that article before. I was told many times by leftoids that the darstardly John Howard changed the way unemployment was measured to make himself look better. I did not have enough knowledge to refute the arguments but the common sense that i have told me that this was insane. Why didn’t the ALP opposition scream out about this??

    The ABS actually released a brief about this point.

    http://www.abs.gov.au/Websitedbs/d3310114.nsf/4a256353001af3ed4b2562bb00121564/53029a3d7a98bb72ca256ec9000ab031!OpenDocument

    “ABS responds to ‘accusations of adjusting unemployment figures’ published in ‘Fraser Coast Chronicle’ on 24 June 2004”

    “Unemployed” (Chronicle 24 June) accused the Australian Bureau of Statistics (ABS) of adjusting unemployment figures to give a picture more desirable to the government.

    These accusations are baseless, and show a lack of understanding of the statistics produced.The ABS is independent of government, as guaranteed through an Act of Parliament. The way in which ABS statistics are defined, collected and published is decided solely by the ABS and is based on high professional and ethical standards. To imply otherwise attacks the integrity, credibility and impartiality that the ABS is known for.

    Employment and unemployment statistics in Australia are measured using internationally accepted concepts and methods. These have been used in Australia since the 1960s.

    In no way can the participation rate be changed to affect the unemployment rate – both rates are calculated directly from survey estimates of the numbers of people ’employed’, ‘unemployed’ and ‘not in the labour force’ (e.g. retired people).

    The unemployment rate is calculated as the ‘unemployed’ divided by the ‘labour force’ (i.e. ’employed’ plus ‘unemployed’). The participation rate is calculated as the ‘labour force’ divided by the population.

    A fall in employment doesn’t necessarily lead to an increase in unemployment (or the unemployment rate). Not all people who leave employment become unemployed – others leave the labour force altogether (for example, people retiring, or stopping work to look after children). People are considered unemployed only if they didn’t have a job at the time of the survey and they were available to work and were actively looking for work.

    The Labour Force Survey is conducted by random sampling approximately 30,000 households around Australia each month. Within each state and territory, all households have an equal chance of selection. The sample is not, as implied, only conducted in some areas, selected to give a particular result.

    The ABS encourages informed community discussion, but it is important that such discussion is based on facts.

    Malcolm Greig
    Acting Regional Director, Qld
    Australian Bureau of Statistics

    6 July, 2004

  53. Someone remind me to wink at Scaper more often if it means Neil wasting another Friday night calling out my name in vain.

    And yeah, you caught me out, Neil; Howard has made a power-walking commentary, not a running commentary, in his very quietude, tis true. So the better and more honest response to those frequent and very quiet Howard lapses into audible speechification would be not to switch him off, but merely to mute him and to supply appropriate captions for his still moving lips. 😉

  54. Someone remind me to wink at Scaper more often if it means Neil wasting another Friday night calling out my name in vain.
    Legion, on May 1st, 2009 at 11:54 pm Said:

    And maybe you should be more careful about telling lies about people!!!

    Also i did not understand most of what you said, but i think it was some type of apology.

  55. Arrogant American-educated management causes worst economic calamity in Western history. The same over-dressed criminals now refuse to accept any responsibility, despite their obvious culpability, and they expect us to just sit there and allow them continue on with their destructive business-as-usual scenarios?

    Ha ha. In their dreams.

    These psychos and sociopaths may wear fine Italian suits but nothing can hide the fact they require “urgent” medical attention. And, following treatment, confinement and hard labour.

  56. (Tony, on May 1st, 2009 at 11:42 pm

    OK Legion Bwooce. Duly noted.

    I should make clear that BWOOCE is BWOOCE, and he both seems to mean business and can afford to write off the retainer on top-tier bloodsuckers as an incidental business expense…and Legion would never, ever do PowerPoint Presentations or Paris.)

  57. Long overdue:

    Days appear to be numbered for super commissions
    http://business.smh.com.au/business/days-appear-to-be-numbered-for-super-commissions-20090501-aq7s.html
    Talk to any international fund manager and they’ll tell you Australia’s superannuation system is the envy of the western world. But it’s not the benefits to you and me that have them drooling. It’s the thought of a government-mandated flow of savings directed straight into the hands of the private sector.

    It’s like the industry’s own private stimulus package. And unlike other stimulus packages, this isn’t a one-off. It keeps right on stimulating – year-in and year-out.

    Last financial year employer contributions to super totalled $69.4 billion – the majority of which was compulsory super. These rivers of gold have seen super assets grow to more than $1 trillion – even after allowing for the ravages of the financial crisis.

    With average super fund fees at about 1.25 per cent, that’s more than $12 billion flowing into the pockets of fund managers, consultants, administrators, financial planners and anyone else who can find a way of getting their finger in the pie. And because contributions are compulsory, that gravy train keeps on growing, despite what may be happening to investment values.

  58. Yep, the superannuation industry is just a haven for the parasites to succour on for absolutely no risk and minimal effort.

    If this ETS gets through the upper house just watch the parasites swarm as it is just another industry to take advantage of with minimal risk.

    Carbon trading will be a boom and the ordinary people will be footing the cost.

  59. Scaper

    An interesting take in the Daily Reckoning newsletter I just recieved:

    Australia to borrow up to $300 Billion

    Which is worse, the Mexican Flu or the Plague of the Black Debt?

    Of 110 million people in Mexico, only 159 have died from ‘flu’ in a week, although the confirmed figures are a fraction of this. Those 159 still only translate as a annualised death rate of 0.74 deaths per 100,000 people. You have ten times as much chance of dieing by drowning. I am starting to think the ‘H’ stands for Hyped-up, and the ‘N’ for Non-event. The global response is bordering on hysterical. At least my bacon is going to be cheap for a while.

    What poses far more risk to us all is the staggering amount of debt that continues to be assumed by Western governments. To give a benchmark for the following statistics, the Maastricht treaty, which created the European Union in 1993, defines a deficit spending of more than 3% of GDP as a reckless fiscal policy.

    Australia’s budget deficit will be revealed next month, and is expected to be 5% of GDP. This represents a $50 billion deficit. Compare that to last year’s $22 billion surplus. Not a good look for K-Rudd’s CV.

    The statistics from my native UK are far worse. Alistair Darling’s budget comes in at 12.5% of GDP! That’s over four times the Maastricht treaty’s definition of reckless. Whilst he was at it, he also increased the top tax rate to 50%, a figure he admits to having ‘plucked out of thin air’. What a great way to run the nation’s finances, and to encourage the top brains to stay in town.

    The US is also playing with fire, running a deficit of 12.3% this year, followed by 9.6% next year. The US already carries a staggering $11.2 Trillion and rising of public debt, which is 74% of GDP. These two budgets will take it close to 100%.

    It’s no surprise that rating agencies have been warning these nations of the potential cost of these debts on their credit ratings. Kyran Curry, a sovereign risk analyst from S&P has warned that further weakening of both the current account deficit and fiscal deficit could cost us our AAA rating. David Uren, an economics correspondent for The Australian, could see this happening within two years.

    That would mean higher borrowing costs for the foreign capital that is the lifeblood of Australia’s economic growth. The Australian Office of Financial Management is currently hawking up to $1.4 Billion of bonds to investors each week, of which about $1 billion worth goes to overseas investors

    And what of the $750 billion the G20 decided to raise for the IMF? The savings-rich BRIC nations (Brazil, Russia, India, China) wisely turned down the opportunity to foot the bill with their foreign reserves. So instead the IMF will be issuing bonds, which will be denominated in their quasi-currency of SDR (a basket of $US, GBP, Yen and Euros). This is a disaster for the US, and a result for China who recently proposed this as a global currency.

    There has been speculation of a ratings downgrade for the UK government as well. Last month it faced the embarrassment of a failed £1.75 Billion bond-raising. Neither are good omens for their plans to borrow their way out of the crisis.

    At a time that the US plans to issue record amounts of debt to fund the budget deficit, it seems that China, its largest creditor, is wisely starting to diversify away from the dollar. There is a real risk that the US will simply pay these staggering debts by printing money. China certainly thinks that might happen. In February, it dumped just under $1 billion of long-term notes, and with good reason.

    Take a minute to read about Obama’s ten year budget plan, released last week by the Congressional Budget office. The dollar’s prospects look worse than ever. Look closely at the stats on the M1 money supply. It’s rocketing. The current deflation is set to be washed away by an inflationary tsunami.

    Martin Feldstein is the professor of Economics of Harvard University. Obama also closely listens to him, as he is the President Emeritus of the National Bureau of Economic Research. His view as outlined in London’s Financial Times was that, “The unprecedented explosion of the US fiscal deficit raises the spectre of high future inflation”.

  60. …somehow, I don’t think carbon trading will lead the list of priorities anytime soon.

  61. John, there is a possibility the deficit could be as high as 8% of GDP which I believe would be of historical proportions.

    I would venture to say that China is purchasing a fair percentage of the bonds we are selling to foreign investors and we figure greatly in their diversification agenda.

    Somehow, I don’t think the ETS will pass in any form and if it does I suspect some of the churn will be funnelled off to service the interest component of our massive debt

  62. Scaper – do you mean the Australian deficit would be 8%?

    How much of that is due to the collapse in government receipts?

    And just as a bit of history – here is the data of the receipts from the early 90’s – which is where most of the $96 billion deficit came from. You can see the growth and then the collapse of the receipts.

    89/90 – 98,625
    90/91 – 100,227
    91/92 – 95,840
    92/93 – 97,633
    93/94 – 103824

    So you can see that there was a 5% collapse in receipts between the 90/91 and 91/92 years.

  63. joni, correct me if I’m mistaken…the Treasurer forcast a surplus of $22B and for arguments sake we end up with a $50B deficit.

    To me that represents an $72B miscalculation on his part but to be fair there was yet another miscalculation of projected receipts of $115B.

    What amazes me is around this time last year the government did not see the GFC coming when all the signs were clearly evident and did not factor in the allowance for reduced receipts.

    That’s right, they were predicting runaway inflation and expecting the boom to continue!

    When the shit hit the fan there was no re-evaluation, just fiscal policy on the run to try to keep the economic orgy alive under the guise of saving/creating jobs that are being shedded on a daily basis.

    The stage has been set for a massive debt burden and eventually a lowering of our credit rating with no clear strategy to get out of this mess apart from the hope that the hedonistic economic climate will return to bail us out.

    These actions could result in a longer recession in my opinion as my phylosophy is the longer one prevents the inevitable, the longer one recovers from the event.

    Time will tell.

  64. Scaper

    I agree on the forecasts etc, but I think it is important to realise that not all of the deficit will be because of the stimulus packages, that it is mostly because of the fall in receipts.

    And that no matter who was in power, the fall in receipts would have occured. Which is why the coalition quietly admit that they would have a deficit of aroun $177 billion and not the $200 billion they predict for the government.

    So – if we do not want a massive deficit as a result of the collapse in receipts, do you propose that the government should slash spending? Which would surely prolong the effects of the downturn, and would cause more people to suffer?

  65. scaper…, on May 2nd, 2009 at 10:18 am

    It’s an intriguing thought, Scaper: the Australian Government having to go cap in hand to China, etcetera, not merely to explain that it’s building itself a new armada and flying zap fly circus, but that China will be required to cough up more readies to do it. Mind you, other nations’ militaries, besides the Australian defence force requiring ultra-long range equipment just so it can protect home-base, have been in the same straits for some time, both in terms of materiel and their defensive jaunts near and far.

  66. Yes, I do propose the government slash spending and base their projections and estimates on a more sober outlook, opposed to some belief that the golden unicorn is going to descend from the heavens to deliver good times, hence relief any time in the near future!

    Middle class welfare, the baby bonus, the FHOG and non-humanitarian foreign aid should all be scrapped.

    Income taxes should be raised for the top two tax brackets and the only increase should be that of pensions and the like.

    It is high time this government got off their populist policy bandwagon and governed for not only us but for the future of this nation!

    They won’t, apart from fiddling around the edges and it would be great if I’m proven wrong, I suspect an early election next year as it is all about power, not true leadership.

  67. Legion, I find this article interesting.

    http://www.theaustralian.news.com.au/story/0,25197,25417579-12377,00.html

    If I’ve read this correctly the funding will be sourced from tax revenue opposed to borrowings.

    Now here is the rub, the reduction in spending that they expect to be achieved, who will be overseeing this and will this come about without the compromise or effectiveness and morale?

    We might not need to go cap in hand over this issue to China but our level of debt could be a determining influence.

  68. We might not need to go cap in hand over this issue to China but our level of debt could be a determining influence.

    Indeed, the magic of accounting buckets creates a handy illusion for all concerned. My favourite last year was the instant pledge of a lazy billion to a Russia-smacked Georgia from revenues gained through the sale of T-bills to China, one way or another, all while the Presnit was in Beijing for the Five-Ringed Circus and the Peking duck. What more for a Boxing Kangaroo riding the back of an iron-clawed Dragon and playing chinese walls with the data mining and the bucket scoops in the ever-deepening public and private debt pits?

  69. John McPhilbin, I read in the Financial Times, I think, this week a comparison between where the Washington Consensus economies are at now and the sudden collapse of the Soviet Union in the early 90s.

    Must admit it scared the heck out of me.

    Do you and the other economically-minded Blogocrats think this is accurate. And what, specifically, should we be doing? Here in the gloomy UK, vegetable growing seems to be the new Facebook/Twitter. Everyone that has access to an allotment or farmland is going for it.

    The Brown Labour Government is gone but the Conservatives are simply offering a re-run of the early Thatcher years. I think my real question is, what if this is the sudden brutal end of the market-economics-paradigm? What are the right kinds of policies for getting our countries out of a depression worse than 1929?

    How do we keep food on the table if the highly leveraged West does indeed collapse like a house of cards?

    Positive input greatly appreciated too. Thanks.

  70. Terry, that will require some thought.

    Here is an indication of the reaction by society if that came to pass.

    http://www.theaustralian.news.com.au/story/0,25197,25418758-12377,00.html

  71. “Terry, that will require some thought.”

    I recommend that you find someone capable of thinking in that case.

  72. Oh shucks, Tom!

  73. Tom you have become the expert re the escape goat’s thinking so what is meant by

    a haven for the parasites to succour on

    succour on? Lol. Is he for the parasites or against them? Everyday language and normative meaning provides no guidance.

    Then again, he’s priceless. And now an international financial advisor as well. Or perhaps a scrapegoat for … whatever.

  74. Nature 5, really there’s just too much material.

    “some belief that the golden unicorn is going to descend from the heavens to deliver good times”

    …or the familiar inside knowledge –

    “Keep an eye on the Infrastructure Australia Report.”

    I’m honoured to exchange opinions with the Mayor.

    That’s it to now.

  75. I mean, that’s it for now. I blame the red.

  76. Terry

    It’s hard to know which way things will turn. There’s an obvious shakeout of global financing and the ‘efficient market theory’ that has dominated markets since the 1980s. Markets can and do get it very wrong and its dislocation and impact on real economies was bound to be drastic.

    However, on the bright side, this crisis should was and for all, bring about more realistic views about how financing globally needs to operate and I’m hoping that a united approach will bring stability back into markets and the global economy. Unfortunately, I think we have some way to go and much more volatility simply because, over time, the system has become more crisis prone and out – of – balance with economic reality.

    The other danger is the socio-political fallout resulting from financial and economic instability that may cause further disruptions to recovery.

    Fortunate for all of us is the fact that we’re significantly more advanced economically and technologically (I’m not sure about politically though) than we were than back in the 1930’s and therefore are unlikely to experience another Great Depression where unemployment reaches 25%.

    Also, I think Morgan Stanley’s Asia chairman Stephen Roach recent comments are worth noting :

    “What I’m most worried about is that the policymakers around the world want to stop the adjustments in the sense of keeping the global economy frozen in its pre-bubble state, with the US consumer driving most of the demand side of the economy and the Chinese producer increasingly driving the supply side,”

    “If we don’t rebalance the world, then you know in a few years we will be talking about another crisis.”

    China, which only two years ago was one of the world’s fastest growing economies, has contracted sharply as export demand dries up.

    Without a strong consumer base of its own , Mr Roach believes there are significant downside risks associated with the Chinese economy that will linger for some time.

    <bloackquote”They have the smallest consumption share of any major economy in the world … about half the equally excessive consumption share in the US and the Chinese need to be much more aggressive and active in providing support for private consumption,” he said.

    However, this could also have implications for the Australian economy, which is very reliant on China as a trading partner.

    Mr Roach believes Australia — a resources-driven economy — may have put all its eggs in one basket concerning the commodities boom.

    The slump in global demand has led to a collapse in commodity prices, which has dampened the growth prospects for commodity-exporting economies such as Australia.

    “The global commodity boom has also gone bust and this has caught Australia without much in the way of a diversification or a backup plan,” Mr Roach said.

    “I think Australia’s still clinging to the idea that the commodity bubble comes back and so the adjustments in the Australian economy have been minimal to date — they could be larger over the next year or two.”

    But in terms of an outlook, Mr Roach does not believe the world is heading towards another depression.

    “This is the worst recession the world has gone through since the end of World War II, but it stops well short of the cataclysmic declines in output, which were about a third in the 1930s; increases in unemployment to 25 per cent; 60 per cent collapse in global trade. I don’t think we’ll get anywhere near that on any of those counts,” he said.

  77. Gee, our Major Charles Winchester (MASH) of this site is such a colourful character.

    Reminds me of an episode, the one where he was attempting to out-pompous the UN doctor who was the butler’s son…lol!

    He should be our culture guru and write a weekly thread to advise us of what cars to drive, wine and food, accommodation and how to wipe our arses with dignity.

    To my knowledge he has never revealed his occupation, maybe he has good reason…me thinks that the Major is the butler.

  78. Scrapegoat???

    Hate to be pedantic but one’s spelling needs revision, with everything else, including FOI and ATO payment procedure.

    It’s the twenty first century, son…if you want to feign great knowledge on a subject do the research as the lack of such is letting you down.

    Scrapegoat, indeed!

  79. The Mayor uses old TV shows as a point of social reference.

    Worldly, a man of substance.

    But best I don’t suggest which substance.

  80. Morning Tom, did the master of the house give you the day off?

  81. I’ll give Wayne Swan his due, he’s an honest man in a very difficult position. As long as he remains honest, I’ll respect him.

    World crisis has hit tax revenue: Swan
    http://news.smh.com.au/breaking-news-national/world-crisis-has-hit-tax-revenue-swan-20090503-ar53.html
    A year ago, Mr Swan said, the International Monetary Fund (IMF) had been predicting world growth of four per cent.

    A week ago, it downgraded its forecast to minus 1.3 per cent.

    “So, essentially, the whole world has turned upside down and, of course, that means global growth is contracting,” Mr Swan said.

    “It certainly means the pressure is on jobs and unemployment is rising around the globe and what it has done is put a wrecking ball through government revenues.

    “Particularly in this country, a country that has been such a beneficiary of a mining boom and has essentially seen its revenues from capital gains tax and company tax dramatically reduced by this sharp contraction in global growth.”

    Mr Swan’s first budget in 2008 delivered a $21.7 billion surplus, but the Rudd government has since spent more than $52 billion on fiscal stimulus packages.

    When asked if he was ever going to deliver a budget surplus as Treasurer, Mr Swan said the government was aiming to restore the surplus once economic growth returned to trend.

    “Well, these are extraordinary times,” he said.

  82. I’ll give Wayne Swan his due, he’s an honest man in a very difficult position. As long as he remains honest, I’ll respect him.

    If anything, John, that comment tells us a lot about you too. It shows that you are a man of integrity.

  83. John, I don’t see the budget being restored to surplus during this government’s tenure until they make the hard decisions that I have outlined here.

    The IMF and the government not seeing this crisis coming until it was on top of us does not engender confidence.

    George made a good point this morning on Insiders, due to the mining boom the last government showered the electorate with the bounty in the form of tax cuts and middle class welfare and this government’s forward estimates was based on the continuation of the boom.

    I see that Rio is holding out on negotiation concerning the benchmark price to the steelmakers and note that steel production is on the increase in China also.

    This will be interesting to see how this pans out.

  84. “I’ll give Wayne Swan his due, he’s an honest man in a very difficult position. As long as he remains honest, I’ll respect him.”

    Well John i hope you are right. Trouble with the ALP and its supporters is that you people are so loyal to the ALP that it does not matter how dishonest, corrupt or immoral the ALP is you leftoids still vote for this party.

    I personally do not believe a single word Wayne Swan says. Politicians in general but ALP politicians in particular are not to be believed.

    I just finished reading Piers Akermans latest article and he quotes Peter Costello saying this

    “When he was checked by a reporter who chided that the trading situation was now quiet different, he made the valid point that the terms of trade today are still very strong.

    “Much stronger than they were in ‘96, ‘97, ‘98, ‘99 and 2000,” Costello said.

    “The terms of trade today are stronger than they were for, I think, nearly the whole of the period – with the possible exception of one or two years when I was treasurer.”

    I don’t know if this is correct but Costello is saying that the GFC is a convienent smokescreen for Swan.

    I also believe that the $50B cash splash was a total and complete waste of money. All this money has now gone down the drain.

  85. ‘I don’t know . . . Neil of Sydney.

    That is undoubtedly your most articulate post ever, Neil.

    . . . but Costello is saying that the GFC is a convenient smokescreen for Swan’.

    Contradiction follows: To wit . . .
    ‘I also believe that the $50 billion cash splash was a total and complete waste of money. All this money has now gone down the drain’.

    IMHO, correct.

    So Neil, how does this alleged ‘smokescreen’ accusation from gutless Tip qualify as a ‘smokescreen’, along with the $50 billion cash splash, a forecast federal deficit enhance the re-election prospects of a (another) Labor government?

    In other words Neil, I believe that sooner, rather than later, the Aus voters will realise just what a pedantic loser Rudd really is. Voters will look down at Rudd’s blowing of the budget. Taxes for all, MUST rise, sooner or later.
    Your greatest regret will be that the Federal Liberal Party is overflowing with spineless primadonnas, well suited cowards, bereft of leadershi, principle, policy and courage, much the same as Federal labor all of which makes for another 4 years of Rudd.

  86. ‘p’

  87. Oops sorry . . . ‘a forecast federal deficit of $200 billion’

  88. Oftenbark, on May 3rd, 2009 at 1:21 pm

    Oftenbark

    I got a shock when i read your comments. That was one of the few times someone has ever complemented my on my comments.

    I hope this does not ruin your reputation.

    I heard a comment about the ALP the other day which I tend to agree with. The comment was that the ALP is really good at winning elections. They just do not know what to do once they get in.

    As for the $50B cash splash?? This has got to be a candidate for the biggest crime in Australian politicial history. Just think of the things we could have built with this money. We could have fixed up the Murray River.

    I don’t know where Rudd got the money from. I guess $20B from costello’s last budget. Maybe Costello had some more money in the kitty.

    At the very least we could have left the money in the bank. $50B at 4% interest is $2B/year we could have used for different things

  89. Interesting feedback for the PM

    Could do better: PM’s essay critiqued
    http://www.smh.com.au/national/could-do-better-pms-essay-critiqued-20090503-argk.html?page=-1

    QUESTION: Is Rudd right? Answer: Not really.

    At least that is the response of one prominent US economist, David Hale, commissioned by The Monthly to review Kevin Rudd’s essay on the causes and implications of the global financial crisis.

  90. My pet hate finally raises it’s ugly head: politicians debating economic theory and management:

    No room for the heretics: why medieval economics hold sway over politicians
    http://business.smh.com.au/business/no-room-for-the-heretics-why-medieval-economics-hold-sway-over-politicians-20090503-areb.html?page=-1
    Scary stuff. Forget the details. Warn the kids and live in fear.

  91. scaper…, on May 3rd, 2009 at 12:11 pm Said:

    John, I don’t see the budget being restored to surplus during this government’s tenure until they make the hard decisions that I have outlined here.

    The IMF and the government not seeing this crisis coming until it was on top of us does not engender confidence.

    George made a good point this morning on Insiders, due to the mining boom the last government showered the electorate with the bounty in the form of tax cuts and middle class welfare and this government’s forward estimates was based on the continuation of the boom.

    Thoroughly agree scaper.

  92. Bound to end badly for some: perhaps owners of highlighly geared multiple investment properties and first homeowners? We’ll have top wait and see.

    Renters scaling back
    http://www.news.com.au/dailytelegraph/money/story/0,26860,25423593-5015795,00.html

    THE threat of pay cuts and unemployment are driving a growing number of young Australians out of rental properties and back to living with their parents or into shared accommodation.

    The trend is adding to the downward pressure on rents sparked by the rising number of young people leaving rental properties to take advantage of the Rudd Government’s boost to the first-home buyers scheme and lower interest rates.

  93. John, Terry has put an interesting question that warrants some thought.

    What policy would deliver us out of a Great Depression scenario if it eventuated and how indeed would people put food on the table considering we live in a technology dependant economy?

    I’m not sure that looking back to the Great Depression and its extended recovery will offer any direction.

  94. Scaper

    I’ve gone on record a few times now highlighting the role of state governments in the overall management of finances. Many have grossly mismanaged state finances over the last decade and they’ve got the gall the hire more spin doctors to try and create the illusion that they’re competent and in control. I guess now there’s no hiding the facts.

    The debate can no longer center on the Federal Governments control or lack thereof over the economy to date.

    States’ woes to prolong recession
    http://www.theaustralian.news.com.au/story/0,25197,25423984-2702,00.html
    SOARING state budget deficits and debt will deepen and prolong the recession, according to new research that blames the states’ predicament on spending splurges rather than the global financial crisis.

    A new report by the Institute of Public Affairs, to be released this week but obtained by The Australian, warns that state government mismanagement will impair investment and job creation as the nation tries to tackle recession.

  95. Scaper

    No easy answers re: policies.

    Production vs consumption globally is central as Peter Schiff pointed out in 2006-2007- The conflicting mindsets is obvious when you view this classic debate.

  96. …It’s actually very aggravating to see how Schiff’s opinion, based on economic reality, were met.

  97. I bet those clowns ain’t laughing at Peter Schiff now!

  98. Poor Peter……..Nice to see his “common sense” analysis was on the money in face of the arrogance of the pundits…..

  99. Sparta

    It’s quite incredible in hindsight that so many could be so ignorant of the facts. Classic ‘bubble thinking’ a ‘new era of permanent prosperity paradigm’ was in full swing. Dangerous indeed.

    Economics author Jim Rogers wrote 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.

  100. None of this is new, of course, noted economist such as John Kenneth Galbraith have grappled with issues such as speculative bubbles and mass financial insanity – Galbraith did an excellent job in describing the Great Crash of 1929..

    Here are excerpts from a seminar conducted by Galbraith in 1998, that I find myself being drawn back to time and again.

    I shall not give you another Harvard length lecture tonight. I’ll surrender to your particular interests and questions. But I might just say a word about the economic situation of our times. I have had a long-time interest in the whole question of economic fluctuation, called by the nicer members of my profession “the business cycle,” the succession of periods of extreme optimism and periods of recession and depression. This has been, for hundreds of years, part of the history of what used to be called capitalism, and what now we more neatly refer to as the market system. We’ve severed our connection with that word, “capitalism,” because that has a nasty connection with Marx and signifies that capital might have a dominant role in the system.

    Be that as it may, this is a system which has a built-in instability, which in good times attracts participants who bid up values in a mood of optimism. That mood produces the increase in price for real estate, but particularly for securities, that justifies the expectation. The process then repeats itself. It’s a simple fact of life, the speculative bubble, but it’s something that, on the whole, economists ignore, the fact that the optimism that attracts people to real estate or securities markets shoves up the price, justifies the expectation, and then the process continues until you run out of optimism, you run out of the means to sustain it, something else intervenes, and you get the inevitable breaking of the bubble.

    One of the great facts of our time is that there is still, in the investment structure, in the stock market, a commitment to what we should call, “the speculative bubble.” The possibility that bubble will break is something that everybody should have in mind.

    There’s one thing that should warn everybody. If you forget everything else tonight, remember this, that when you hear someone say, “We have entered a new era of permanent prosperity,” then you should immediately take cover, because that shows that financial idiocy has really taken hold and that history, all history, is being rejected.

    I once spent some months of my life on the 1929 crash. And in a way, I’m grateful. That book, which I wrote, which was published in 1955, has been in print ever since, because every time it was about to go out of print we had another crack-up and the book was saved. I learned, I must say, a lot from writing that history. I did it up at Dartmouth, and it was such a marvelous introduction to mass insanity. I finished it, published it. It was, for a couple of weeks, on The Times bestseller list, which has an enormously adverse effect even on the best character–you never go by a bookstore again without looking in the window to see if it’s there. It very rarely is.

    This all comes to mind because we have been enjoying, we’ve been seeing, a period of strong stock market speculation, we have seen the rush into the more dubious, the more questionable, and sometimes the more insane, of the subsidiary investment opportunities in the stock market, including hedge funds, for example, run by two Nobel Prize winners. You can see it every day, some reference to “a new era of permanent prosperity.” This is the commonplace of what is called the speculative, the financial mind. The “great financial mind” rarely survives the market.

    In 1929, two or three did. Joe Kennedy, the father and the founder of the Kennedy family, was deeply in the market in the 1920’s, and got out. That is the basis of the Kennedy fortune to this day. The other great figure of that time was Bernard Baruch, who also went on to manifest interest in political and government matters. Baruch got out in 1929, in that summer, with a nice heap of millions, in a day when a million dollars really counted for something.

    This is the warning of the present time. It’s a warning that everybody should have in the back of her or his head. The effect of the speculative collapse is something which economists have not yet, even to this day, fully appreciated, because it is not the collapse that causes the trouble, but the further effect on investment, and also the further effect on consumer spending.

    A very large part of our present consumer spending is based on debt creation, credit cards, or the impression given by stock market gains or real estate gains. If and when the end comes, the economic effect will be the drying up, the slump, in consumer expenditure and, of course, the economic effects of that.

  101. Time to brace ourselves as banks start coming clean:

    Banking gloom set to deepen
    http://www.theaustralian.news.com.au/business/story/0,28124,25422447-30538,00.html
    CONCERNS about bad and doubtful debts among the country’s bankers will continue this week as Westpac’s Gail Kelly parades the bank’s interim result on Wednesday and Commonwealth Bank’s Ralph Norris prepares for a market update on May 13.

    If last week’s earnings reports from ANZ, National Australia Bank, BankWest and Macquarie Group are any guide, the news won’t be pretty.

    In the past week, investors have had to swallow a dilutive equity raising from Macquarie, a partial underwriting of NAB’s dividend reinvestment plan, dividend cuts, big profit falls and a $4.5 billion writedown in bad and doubtful debts from NAB, ANZ, BankWest and Macquarie Group.

    In all cases, the results released last week were worse than expected, particularly their composition, prompting another wave of selling as analysts took the knife to their earnings forecasts and, in some cases, stock recommendations.

    The expectation is that for the full year, the big four banks will book bad and doubtful debt charges of $14billion or more, as more corporates blow up, start to default on payment, and the small to medium-size businesses start to fall over.

  102. It looks like more bad news by the end of the week.

    http://www.theaustralian.news.com.au/story/0,25197,25424880-12377,00.html

    This will be interesting, I suspect the stock market bounce will peak and slide yet again.

    The ensuing trough will be an indicator.

  103. Here’s the interesting thing Scaper, once the system is finally purged of toxic assets/bad debts and production and consumption are better balanced (of course, the pain people are genuinely feeling is the destruction of false affluence) opportunities for more genuine and sustainable investment opportunities will arise (in a global sense of the word ‘investment’). I believe we are well placed to take advantage of many of these opportunities.

    However, the pain of debt reduction and the destruction of unsustainable false affluence based of debt creation (housing, stocks and consumer spending) will have to be radically re-balanced in order for more sustainable options to make themselves available.

  104. …turns out I’m an optimist in the true sense of the word (Lol)

  105. Scaper

    Truth be known, we have to write-off the Howard years as Australia being the beneficiary of an extraordinary period of global expansion. Now we have to get back to reality.

    Loss of company profits critical
    http://www.theaustralian.news.com.au/business/story/0,28124,25423076-643,00.html

    THE erosion of company profits is the biggest threat to the federal budget and may leave the Government with a long-term structural deficit.

    Between 2003 and 2008, company tax revenue grew at an extraordinary annual rate of 16.4 per cent. The Howard government recycled this surge in new spending and personal income tax cuts.

    If all we see from the downturn is a temporary dip in company profits, then bringing the budget back into balance will not cause serious headaches.

    But the boom was of such dimensions that we may not see the like again in a business life-time.

    That raises the risk that tax increases, harsh spending cuts or a combination of both will eventually be required, although this could only be engineered in an externally imposed crisis.

  106. Scaper

    Just in from the Daily Reckoning:

    From Dan Denning at the Old Hat Factory:

    –Here we go again. Australia’s Federal budget-revealing glorious new deficit, is coming is coming next week. But this week will be all about tomorrow’s Reserve Bank meeting and today’s house price data from the Australian Bureau of Statistics.

    –Oh wait. We forgot about the ‘stress tests.’ Remember that’s the official government report of how the 19 largest U.S. banks would hold up under further loan losses or asset write downs. It’s designed to give investor (and the banks) a transparent picture of how much capital the banks need to be unequivocally healthy.

    –Actually, it’s not designed to do that at all. The ‘stress tests’ are a white-wash. There’s no way the government would release a report to the market that said the banks were in horrible shape (insolvent) and needed billions more in capital to make up for billions of losses in residential and commercial real estate.

    –That means either the ‘stress tests’ were a bogus exercise in deception. Or, to the extent they uncovered anything legitimate, it will be leaked in the press and priced into the relevant banks shares before the tests ever hit the public. Besides, the ‘stress test’ began in 2007. The market’s already told us what it thinks of the banks.

    –One more quick note on commercial real estate. Is it still ‘the other shoe to drop’ on the banks this year? Maybe it already dropped! The Guardian reports that, “Global sales of investment grade real estate plunged 73% to $47 million in the first quarter from a year ago, or just one-sixth of the level two years ago, according to real estate research firm Real Capital Analytics on Friday.”

    –A 73% cliff dive is as good as a crash in our book. But that figure only refers to new sales. There is a lot of existing debt that has to be refinanced. “Making things worse,” the Guardian adds, “the number of properties that need to refinance or need capital infusions is soaring. New reports of defaulted mortgages and failed commercial property companies surpassed $55 billion in the first quarter, bringing the total known distressed commercial properties to $153 billion.”

    –This is one reason to remain suspicious of property and financial stocks this year. In fact, you can pretty much bank on the idea that these stocks will never lead the market again in the way did over the last five years. The sector that leads the market up in a credit boom never really fully recovers as the best-performing sector (think tech stocks).

    –One thing to watch for? The financial sector and state governments using the Federal wholesaled funding guarantee to trash the country’s international credit rating. Macquarie Group used the Fed guarantee to raise $14 billion on international debt markets at the end of the financial year. The company has already set aside $200 million to pay the Feds for the use of the guarantee this year (think about that for a second, this government is ‘selling’ its credit rating for $200 million).

    –Macquarie is raising capital this way, “Mainly because Macquarie could actually save money on its deals because it did not have to rely on its lower (and therefore higher risk-rated) single “A” credit rating. Analysts have estimated Macquarie’s benefit at $580 million for every $10 billion of new debt raised,” reports Danny John in today’s Age.

    –To be fair, Macquarie is also raising money from equity investors too. After announcing write downs that slashed its full year-profit in half, the company told the ASX it had sold $540 million in new equity to institutions. So here’s the question…what is the bank loading up for?

    –By ‘loading up’ we mean that it’s essentially re-arming itself to get back in the market…and do what? “Macquarie is already aiming to build a global stock-broking business centred on Asia, London and New York and to become significantly bigger in energy trading, specifically in oil and gas. It plans to buy new businesses and increase its existing operations with capital injections on the other side of its balance sheet.”

    –Hmm, oil, energy, and Asia? That sounds like a strategy based on decoupling. Remember that? It was the idea that the credit crisis would hurt the U.S. and Europe but not so much the emerging market countries. But it depends on what you mean by ‘hurt.’

    –Equity investors everywhere were ‘hurt’ in the last 18 months. Nowhere was safe. Nothing was decoupled. So now the question is which economies will recover first: the high-saving emerging markets with growing populations and rising incomes, or the highly-indebted industrial economies that are going even deeper into debt to bail out financial institutions (this is not a trick question.)

    –By the way, Western governments have been so fixated bailing out their banks they haven’t noticed how Chinese banks and companies are providing critical capital to world-class mining projects. China picked up another valuable pebble when China Non-Ferrous Metal Mining Company picked up a controlling stake in the world’s largest non-Chinese rare-earths producer for the paltry stake of $505 million on Friday. We’ll have more on the sad strategic case of Lynas Corporation tomorrow and whether there is good news buried in the story of Aussie resource investors.

    –Is it fair to blame the government for leaving strategic assets hung out to dry? That’s debatable, and the Treasurer still has to sign off on this deal. But obviously the government has other problems on its mind. On Friday, Treasurer Wayne Swan said government ‘revenues’ would be about $100 billion less than he expected with last May’s budget.

    –What does all this lead to? We reckon the combined burden of Federal, State, and government-guaranteed bank borrowing is going to put a lot of pressure on the Aussie dollar and lead to higher interest rates. State governments are already under pressure. “Victoria may lose its prized triple-A credit rating as the State Government pushes the state deep into debt to fund new roads, railway lines, hospitals, schools and water projects, one of the big four banks has warned,” today’s Age reports.

    –The Wall Street Journal (and international investors) are on to the story too. The Journal reports that, “Australia’s major states are all expected to post in the next six weeks a significant deterioration in their fiscal positions, strengthening expectations of a surge in state government bond issuance. A dramatic erosion in traditional revenues from land taxes and mining royalties will be a common theme for all states.”

  107. …damn, it gets back to the role of our state governments again. In short, we’re ‘f%$ked.

  108. Scaper

    What’d I say? ETS is the least of Government’s concern at this point in time.

    Rudd set to delay emissions trading scheme
    http://www.smh.com.au/environment/global-warming/rudd-set-to-delay-emissions-trading-scheme-20090504-aryi.html

    The Federal Government is planning to delay its emissions trading scheme by one year, smh.com.au understands.

    The Prime Minister Kevin Rudd is scheduled to make an announcement at lunch time.

    It is believed the Government still wants the legislation for the scheme to be passed this year but the scheme itself will not start until 2011 at the earliest, rather than 2010 as originally intended.

    It is also believed transition assistance for the big polluters, known as emissions intensive trade-exposed industries, will be made more generous.

    The change will be a concession to concerns of industry about starting a scheme during lean economic times.

  109. Miglo, on May 3rd, 2009 at 12:11 pm Said:

    I’ll give Wayne Swan his due, he’s an honest man in a very difficult position. As long as he remains honest, I’ll respect him.

    If anything, John, that comment tells us a lot about you too. It shows that you are a man of integrity.

    Sorry Migs, I missed your kind words. I try very hard to maintain a standard of honesty, especially when I turn out to be wrong. In fact, I view being wrong as an opportunity to fess up and admit my errors.

    Wayne Swan seems to be doing his level best to be upfront, and I have to respect that. It’s certainly refreshing to be able to say that about a politician – especially after enduring the Howard Years.

  110. John, the proposed ETS in its current form has buckley’s of getting through the Upper House and they know it!

    There is uncertainty out there by industry which has stalled investment, from a position of not acting now which has been the government mantra to delaying action will not alleviate the situation.

    It will be interesting to see how they spin this one.

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