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Weekend reflections

August 25th, 2006

Weekend Reflections is on again. Please comment on any topic of interest (civilised discussion and no coarse language, please). Feel free to put in contributions more lengthy than for the Monday Message Board or standard comments.

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  1. econwit
    August 25th, 2006 at 11:35 | #1
  2. Terje (say tay-a)
    August 25th, 2006 at 12:58 | #2

    Given the concerns mentioned previously on this site about the way the administration of PPPs end up in transfering risks to the taxpayers, I would be interested to hear peoples views on the federal governments intention to assume risk for those that invest their wealth with a bank via deposits. I’m not in favour. The story made the front page of todays Financial Review.

  3. August 25th, 2006 at 13:00 | #3

    Anyone else noticed the Treasurer and PM endorsing the concept of deposit insurance? They suppose that it can be introduced (according the today’s AFR – sorry, no link) without cost and without moral hazard.
    Bollocks.

  4. Terje (say tay-a)
    August 25th, 2006 at 13:13 | #4

    Econowit,

    I agree that the give away option gets too little consideration. Giving the remainder of Telstra to all Australian citizens would be a great idea. However for government officials who think they are running a business and must maximise their corporate earnings such a concept may not sit well. What a pity.

    In fact if Telstra had been given to it’s customers as a mutual organisation in the first place the left leaning crowd could have had their collective feel good and the rest of us would have been happy to see the state pull its horns in just that tiny bit.

    Who would oppose the creation of a customer controlled telecommunications mutual organisation? Democracy without the stick.

    Regards,
    Terje.

  5. Hermit
    August 25th, 2006 at 13:17 | #5

    I don’t know if others share this view but I prefer Costello to both Howard and Beazley on the basis of his apparent lack of ‘militarism’. With Howard we have his commitment to US military ventures and his mawkish sentiment over events many decades ago. I recall his archaic speech about Australia being ‘engaged in theatre’. Beasley is damned over his recent emotional wobbles and the myopia of decisions he made as a former Defence Minister; for example the Collins submarines which are useless but have cost $7bn so far.

    I’d expect Costello to be more level headed about military matters past and present. Perhaps like others he believes that most of the problems of the 21st century are too big to be solved by conflict.

  6. Bring Back EP at LP
    August 25th, 2006 at 14:06 | #6

    Hermit you are not up to date.

    The Collins class sub is a word class sub indeed the US is so impressed that Rich Armitage said in the death throes of being deputy to Colin that the US would call on them to blockade Chinese port in case of war between Taiwan and China.

  7. Razor
    August 25th, 2006 at 16:14 | #7

    BBEP at LP is spot on, Hermit. Despite some technical problems not uncommon to complex leading edge new developments, the Collins Class Subs and their crews are the best conventionally powered Subs in the world. We should have bought two more.

    They have proven exercise kills on US Aircraft Carriers – the best protected Maritime Assets in the world.

  8. Katz
    August 25th, 2006 at 18:26 | #8

    If al Qaeda gets subs, they’re toast.

    Rich Armitage would say that, wouldn’t he?

  9. Katz
    August 25th, 2006 at 18:29 | #9

    Stepped on my own line! subs = aircraft carriers

  10. August 25th, 2006 at 21:38 | #10

    A number of submarines have carried aircraft. Here.

  11. Mike Hart
    August 25th, 2006 at 21:44 | #11

    Bollocks is right for deposit insurance that Costello has asked the RBA to look at. Federal Government surrendered the idea of deposit protection when they deregulated the system and got rid of statutory deposits and effectively allowed anybody to hang a shingle to create money by deposit and bond schemes. Too little too late. They (well we as usual) will just have to live with consequences as the market rewards unpriced risk as the great real estate ponzi scheme unravels over time along with the last great resource boom. It seems they only now realise bailing out corrupt corporate failures is fiduciary nonsense. Trouble is the great helmsman is an expert at throwing public money and private failures and using fiscal largesse to prop up his political agenda. Costello’s the one stuck with a free spending PM.

  12. Mike Hart
    August 25th, 2006 at 21:46 | #12

    Bollocks is right for deposit insurance that Costello has asked the RBA to look at. Federal Government surrendered the idea of deposit protection when they deregulated the system and got rid of statutory deposits and effectively allowed anybody to hang a shingle to create money by deposit and bond schemes. Too little too late. They (well we as usual) will just have to live with consequences as the market rewards unpriced risk as the great real estate ponzi scheme unravels over time along with the last great resource boom. It seems they only now realise bailing out corrupt corporate failures is fiduciary nonsense. Trouble is the great helmsman is an expert at throwing public money at private failures and using fiscal largesse to prop up his political agenda. Costello’s the one stuck with a free spending PM.

  13. Dave
    August 25th, 2006 at 23:32 | #13

    Right I’ll have another go:
    - rising income inequality partly driven by excessive executive remuneration
    - rising executive remuneration driven by lazy shareholders waving through rises in pay
    - lazy shareholders who dont vote down payrises tend to be large fund managers and super funds
    - large fund managers and super funds are rewarded generally by getting a proportion of assets under management, and therefore its not worth their while to vote down executive remuneration: they are not rewarded to be lean and mean.
    - all things being equal a company which votes down executive pay would outperform a company which bids up executive pay as studies have shown no link between pay and performance
    - solution therefore is for someone to create a ‘lean and mean’ super fund to cut back on executive pay and correct this market failure.

    comments?

  14. Mark U
    August 26th, 2006 at 00:54 | #14

    Has anyone else had a problem getting their Census form?

    It is now almost three weeks since the Census, and despite my best efforts (one email and three phone calls) to try and get a Census collector to deliver a form to our house, nothing has happened.

    There are some indications that low unemployment has reduced the pool of competent Census collectors and that some collectors have “resigned” for more lucrative jobs before completing their appointed tasks.

  15. Terje (say tay-a)
    August 26th, 2006 at 08:02 | #15

    Dave,

    I think you make a reasonable case.

    Regards,
    Terje.

  16. Katz
    August 26th, 2006 at 08:55 | #16

    “- solution therefore is for someone to create a ‘lean and mean’ super fund to cut back on executive pay and correct this market failure.”

    Doubtless it would be a solution.

    The same solution would enable Bank A to dominate Bank B by redirecting high remuneration of its execs toward higher interest rates for depositors and/or lower fees for services.

    But this hasn’t happened. In fact, rather the opposite has happened. Why?

    The managers of corporate capitalism owe their first allegiance to their remuneration packages. They also act as gatekeepers deciding who joins their charmed circle.

    Managers of Dave’s hypothetical lean and mean super fund may begin with economic ambitions, but over time they tend to succumb to the temptations associated with incorporation into the charmed circle.

    After all, just like all the rest, their first allegiances are also to their own remuneration packages.

  17. vee
    August 26th, 2006 at 11:28 | #17

    We may as well wait for regional communities to move to the cities now and help in the collapse of Australian infrastructure along with the immigrants and watch Australia itself collapse.

    It has been shown time and time again that Telstra can’t work this way and it now fairly evident nobody with the power to do something about it cares.

  18. Smiley
    August 26th, 2006 at 11:30 | #18

    In regards to Terje’s comments about “the federal governments intention to assume risk for those that invest their wealth with a bank via deposits”.

    Lets see. The Federal government deregulates the banking industry, allows banks to lend money with reduced reserve requirements. The banks then allow customers to take out loans to the value of 105% the value of a property that they are investing in. Is it my responsibility as someone who likes to save for their investments to bail out the irresponsible investors/federal government/banking industry?

    I don’t think so. But then again, by diversifying my investment, and ensuring that my main term deposit is not over exposed to, say housing (I use Elders Rural Bank), I think that I have protected myself to some extent.

    Smiley

  19. August 26th, 2006 at 15:12 | #19

    Given the current high base metal prices, the actual metal value of our coins has past the face value. Using the prices for Copper and Nickle from yesterdays paper, I have worked out that the Australian 5 cent coin contains 5.38 cents worth of metal, the 10 cent coin contains 10.7 cents and the 20 cent piece is worth 21.5 cents. So could we see a replacement of our current coinage on the cards in the near future like New Zealand has recent undertaken?

    (And anyone with a jar full of old one and two cent coins are really in luck as these are worth 2.5 and 5 cents respectively).

  20. Tony Healy
  21. Tony Healy
    August 26th, 2006 at 15:14 | #21

    There’s been remarkably little attention paid to recent promotion of state government land tax and release polices as reasons for housing affordability. As Shaun Carney points out, this little campaign comes just as interest rates are starting to become an electoral issue for the Howard government.

    Carney also details the involvement of the IPA in this and other dodgy campaigns, such as the one involving the recruiting industry front group, Independent Contractors of Australia.

    Carney writes: “Presumably one of those papers was a piece by Bob Day that appeared on the opinion page of The Australian on Tuesday, which ran out all the anti-regulation lines from Moran’s paper. Day was identified at the end of the piece as the “chairman of the Institute of Public Affairs’ Great Australian Dream Project� but he is also a successful builder, a driving force behind the Independent Contractors Association and a former HIA president. He also has another important credential: he’s the Liberal candidate for the marginal Government-held Adelaide-based seat of Makin.�

  22. stoptherubbish
    August 26th, 2006 at 15:50 | #22

    Tony Healy draws attention to an important issue that deserves closer scrutiny by those concerned for honest and open debate. The ICA is in fact an ‘astroturf’ association, established to put some ‘populist’ gloss on the government’s Independent Contractors Act. It is a complete ‘front’ organisation, a mile wide and a millimetre deep. I almost died laughing when reading the ‘report’ of a happy camper at a ‘conference’ held early this year, on the joys of ‘independent’ contracting, as opposed to the slavery of employment rights that come with the employment relationship. It is typical of the organisations that have risen to prominence under Howard-the IPA and the CIS are also typical. They are recruited to provide a semblance of policy ‘debate’, whilst being paid by both business and govenrment to perform both ‘analysis’ and advocacy’ in the public arena.

    The people that fund these organisations are of course entitled to do so, but the public is also entitled to know who funds them, most particulalry when they are recruited by government to ‘advise’ on policy, and when retained by media orgnisations to provide ‘comment’ on issues of the day.

    The spruiking by the government and its supporters about the money donated by union memebrs to the IR campaign, is a cute bit of obfuscation here. Unlike the IPA and the CIS, the sources of the ACTU funding is well known, voluntary and represents the voted monies of over 1.5 million ordinary Australians. I await with interest, but in the interests of my health,will not hold by breath, for an open, honest and transparent accounting of all the sources of funding of the IPA and the CIS, and for an open and transparent account of all monies paid by the government (that’s you and me) to the ACCI and the BCA.

    How ’bout it all you liberty loving libertarians out there? Where does the money come from? Who pays the pipers?

  23. Paul Kelly the muso, journo etc
    August 26th, 2006 at 17:14 | #23

    It was only a couple of years ago the PM was preaning over the doubling/trippling of house values on his watch. ‘No-one ever came up to me on the street and said John I’m upset my house value has risen’ or something like that.

    Now it’s the states’ fault. As Carney relates, a mob of govt. funded cheerleaders have joined his cause.

  24. Seeker
    August 26th, 2006 at 17:30 | #24

    B.S. Fairman

    Interesting.

    Though presumably it is very illegal to sell off (at least currently valid) coinage of the realm for the metal contained therewithin, especially if you melted it down first.

  25. Terje (say tay-a)
    August 27th, 2006 at 13:22 | #25

    Smiley,

    You said:-

    Is it my responsibility as someone who likes to save for their investments to bail out the irresponsible investors/federal government/banking industry?

    If you think they are a pack of clowns then don’t invest with them. You are free to put your money in a private vault if you don’t trust the banks to invest it on your behalf.

    Deposit insurance requires third parties (ie taxpayers) to rescue you if your bank goes under and it can’t repay it’s debt to you. This is but another example of moral hazard, socialising risk whilst leaving reward private, and the general pattern of punishing third parties that have done nothing wrong.

    I think that this is just more evidence that the Howard government is merely a different flavour socialist government.

    Regards,
    Terje.

  26. Terje (say tay-a)
    August 27th, 2006 at 13:29 | #26

    Given that something like 60% of people already believe that their bank accounts are government guaranteed a much better move would be to mandate (ouch) that banks provide notice to customers when they open a bank account, and then in prominant text on each subsequent account statement, that the account is an investment with associated risks and that the Australian government DOES not guarantee bank depositors funds.

    The banks could then sell third party insurance to depositors if there was a demand for it.

  27. August 27th, 2006 at 16:44 | #27

    Seeker
    Indeed it is illegal to melt down Australian coins (even pre-1966 coins are still protected). I think the penalty is up to $5000 fine and 2 years jail, but that has never stop anyone before. The early silver 50 cents were mostly melted down.
    However, my many point is that it ceases to be cost effective to make coins if the raw material is worth more than the face value. Hence, the only 5, 10 and 20 cent coins that will be made next year will be the ones made for collectors. But if metal prices maintain their current high level, something will need to be done soon.

  28. Smiley
    August 27th, 2006 at 21:40 | #28

    Terje,

    I did say “But then again…”. And I suggested that I thought that I had reduced my risk, all-be-it with reduced returns (as is normally the case). I do the same with my superannuation.

    I do to some extent agree with you. But, I didn’t ask the government to make it risky, they did it all of their own accord (reducing the interest rates to all-time lows – thanks to monetary policy, reducing reserve requirements… yada-yada-yada). This government has created (hidden) inflation that I did not want to participate in (though others have taken advantage), and I have actively tried to avoid.

    I hope property owners don’t expect the government to guarantee the value of their investments. I suspect that the government has been trying to do this by increasing the rate of immigration (but don’t quote me on that yet). I find it strange that we have a housing crisis, yet at the same time we have a fertility crisis. But maybe, the two are inexorably linked. Maybe young couples trying to payoff an overly expensive house cannot afford the risks/responsibilities associated with having children while they are so heavily in debt.

    I think that mandating the declaration of government guaranteed bank accounts is a good idea. But I wonder how many people would open a bank account if they had just been told that the deposit was not guaranteed by the government? I wonder what would happen to those banks that were overexposed to risky investments, if all their depositors suddenly decided to switch to less risky investments?

    And this brings up another questions. What about smartalecks who participated in a risky investment while the going was good, and then switched to the “government guaranteed” investment, just before the bust? The more I think about it, the more I think you might be right.

    So how do you ensure that this “dirty money” isn’t made clean… Yes, it does sound like a drug dealer laundering his ill-gotten-gains. If you make a pact with the devil, why should you receive a get-out-of-jail-free card? And the excuse: “He was a smart investorâ€? just doesn’t cut it with me. The “pump and dump/get rich quickâ€? mentality is exactly what causes booms and busts.

    Maybe the government should rate investments based on their riskiness. And when you switch investments, you cannot immediately switch to a government guaranteed investment from a risky investment. But what ensures that the government doesn’t turn something that is regarded as a safe investment into something that is regarded as risky? In my mind this is what the government has just done. Who is to be the judge of what is risky?

    I guess what I’m trying to say is that I prefer to live a risk averse lifestyle, yet the government has tried to make every investment choice risky. What right did they have to do that? I know its a generalisation, but maybe its the right-wing governments that are causing the problems by creating so much risk. Keep them wired to keep yourself in power.

    As for the idea of selling third party insurance for risky investments… Isn’t that just like reducing your ROI by investing in something that is less risky? It does sounds like a convoluted solution to me. A bit like the reinsurance game.

    Smiley

  29. Tony Healy
    August 28th, 2006 at 12:22 | #29

    Re the Howard government’s dishonest campaign to deflect attention away from the effect of interest rate rises on housing affordability, Andrew Bartlett points out that he’s been on the case for some time. He writes:

    “I put out a couple of media releases on this topic in recent weeks – mainly because I got irritated the sheer gall of Peter Costello criticising the states for not implementing Productivity Commission recommendations on the cost of housing, when he had specifically rejected all of the Commission’s recommendations which applied to the federal government.”

    He also has a good Online Opinion piece on the subject up today.

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