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Monday Message Board

July 14th, 2008

It’s time once again for the Monday Message Board. Please post your thoughts on any topic. Civilised discussion and no coarse language, please.

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  1. Tony G
    July 14th, 2008 at 19:50 | #1

    Why are interest rates always higher under Labour?

    Tony, this is about the tenth time you’ve made this silly, wrong comment. This is trolling and a breach of the comments policy. Anything further from you on this topic will be deleted. If you wish to continue contributing, please find something new to say. I request other commenters not to respond – JQ

  2. July 14th, 2008 at 21:15 | #2

    I keep wondering where everyone is this week. It’s very quiet on the blogosphere. Must be on holiday with Nelson. I’ve been forced to read Spanish to get some good blogging. the green paper should bring out the usual suspects and enliven debate.

  3. observa
    July 14th, 2008 at 21:48 | #3

    ‘I keep wondering where everyone is this week. It’s very quiet on the blogosphere.’
    Might be paying their respects-

  4. Hermit
    July 15th, 2008 at 08:16 | #4

    Word is that the message in the green paper is that trees will save us (? I thought they were dying) and emissions will be pumped underground.

    Seems we won’t have to cut emissions after all.

  5. Jim Birch
    July 15th, 2008 at 13:29 | #5

    How do you spell Labor?

  6. July 15th, 2008 at 15:44 | #6

    The ALP use the US method of spelling it. The rest of the Australian population use the British method.

  7. Tony G
    July 15th, 2008 at 16:26 | #7

    Labour party


    a political party in Great Britain, formed in 1900 from various socialist and labor groups and taking its present name in 1906.

    British Labour party

    “a political party formed in Great Britain in 1900; characterized by the promotion of labor’s interests ”


    capitalization fixed in line with source – JQ

  8. smiths
    July 15th, 2008 at 16:36 | #8

    andrew this one will be right up your alley,

    a very thorough and interesting post on how to measure what is money

    “TMS and M’ are clearly superior to M3 by any practical measure that I can come up with.

    As for measuring inflation or deflation, I do not think any of them will suffice for the simple reason that credit marked to market is plunging and that is the way things need to be looked at. Unfortunately, there is no accurate measure of the plunge in credit because financial institutions are not marking credit to market. Instead much credit is still in SIVs and/or hidden in Level 3 (marked to fantasy) assets.

    We can say that bank credit is shrinking, but we also know the numbers are distorted by off SIVs slowly coming back on bank balance sheets. That is on top of the distortion I mentioned earlier in that M3 and MZM are expanding because credit lines are being tapped and parked in money market funds.

    Judging from collapsing real estate, people walking away from homes, risk aversion sinking in, and banks unwillingness to lend, together with the idea that credit that should be marked to market isn’t, I believe we are in deflation, right here right now. Those focused on M3 or energy and food prices are truly missing the boat. Trillions of dollars of destruction in housing wealth (with much more coming) and another trillion markdown in bank credit coming (on top of what we have already seen) are far more important and far more representative of the state of affairs than is M3, or any other monetary aggregate for that matter.


  9. wilful
    July 15th, 2008 at 16:53 | #9

    The Australian Labor Party has been consistent in its spelling since inception, more than 100 years ago. No idea why, don’t really care.

  10. July 15th, 2008 at 17:02 | #10

    for those that do care – they have not been consistent.

  11. Lord Sir Alexander “Dolly” Downer
    July 15th, 2008 at 17:03 | #11

    The Australian has gone completely bonkers about the Pope and all those kiddies. Professor Kelly out-did even his own hitherto unbeatable levels of didacticness (such a word?) and pompousity.

    The paper editorialised that that guy who was raped by the priest actually asked for it. George Pell can do no wrong, everyone should shut up and start believing in God.

    They are truly mad over in Holt Street.

  12. July 15th, 2008 at 17:25 | #12

    The idea of launching an Irish-dominated team in Sydney’s western suburbs, which would perform before an international audience under the Celtic brand name, must be amongst one of the strangest ones of 2008.

    I can just imagine the Vietnamese and Middle Eastern Australian people living in the Western suburbs of Sydney just jumping at the chance of following an Irish AFL team.

    A team playing a sport that no ones watches in that part of the world, named it after a country representing hardly any of the people living there.

    Is this an idea from ‘The Chaser’?

  13. El Mono
    July 15th, 2008 at 17:53 | #13

    ASa Catholic i would just like to say Pell is as embarrasing as Sheik Hilali is to Muslims

  14. wilful
    July 15th, 2008 at 17:55 | #14


  15. Steve
    July 15th, 2008 at 18:29 | #15

    Jeez, just read that Australian editorial – truly bonkers.

    Pell decided that he couldn’t make a judgment since it was the priest’s version of events against the victims. Seems sort of OK… Except, the church’s investigator found the complaint should be upheld, but Pell ignored that recommendation. Pell also wrote to another victim on the same day for god’s sake, so fr Goodall should have been regarded with some suspicion, and not just taken at his word. the case warranted closer scrutiny, not the dismissal that Pell gave it. When the police investigated, they had Fr Goodall admitting to the victim that he forced himself on the victim.

    Pell’s judgment seems at best absolutely insensitive and appalling, and at worst, he is lying about it now.

    Imagine if the victim was a woman (a strong woman if it helps my analogy) and suddenly “why didn’t the victim just fight them off?” sounds a bit lame and doesn’t excuse the crime one bit. The victim was a devout catholic, and it is understandable that they would be a bit shocked and also reluctant to start a row with a priest. They rejected the priest’s initial advance, that should have been more than enough.

    Here’s a snippet from lateline. “Innocent mistake” doesn’t cut it when you are a cardinal dealing with sexual abuse:

    CARDINAL GEORGE PELL (Voiceover [to the victim]): Mr Murray [the church’s investigator] was of the opinion that the complaint of attempted aggravated sexual assault cannot be considered to have been substantiated.

    CONOR DUFFY: Today Cardinal Pell said that too was an innocent mistake, not a fabrication.

    CARDINAL GEORGE PELL: No that is an overstatement I acknowledge that.

    REPORTER: Is it an overstatement or is it just not true and made up?

    CARDINAL GEORGE PELL: No because I accepted the basic conclusions of Murray, that the charges were substantiated.

    REPORTER: Why did you say then Mr Murray was of the opinion that the complaint of aggravated sexual assault cannot be considered to be substantiated when Murray said nothing of the sort.

    CARDINAL GEORGE PELL: Because I’d come to that conclusion after advice and considering the matter and also confirming that all along Goodall insisted that it was consensual, and he confirmed that to me.

    REPORTER: But why did you contribute that to Mr Murray…

    CARDINAL GEORGE PELL: That was an overstatement. That was an innocent error.

  16. Blob S
    July 15th, 2008 at 19:36 | #16

    I thought it was interesting how the potential collapse of two shareholder owned companies, prime movers of the American home lending market, may have to throw themselves onto the mercy of the taxpayers to rescue the entire financial system. Here is the predictable response when market failure is nigh “The cost to taxpayers will be large, observers predict, but they argue that the price of not intervening would be far worse” Oops, thats right, it’s the taxpayers fault.

  17. rog
    July 15th, 2008 at 19:50 | #17

    Exactly so Blob S, the taxpayer will now wear the risk for government failure in the market place

  18. rog
    July 15th, 2008 at 19:52 | #18

    Curiously no comment has been made as to how a regulator can also own a market player yet remain impartial, conflict of interest?

  19. jquiggin
    July 15th, 2008 at 20:20 | #19

    Rog, there are ample instances of successful regulation in industries in which GOCs have played a major role (for example, banking for most of the period after WWII – things went a bit screwy after deregulation, but that’s not the point at issue here).

    So I assume your question is in line with the economist’s joke “Granted it’s fine in practice, how does it work in theory?”

  20. July 16th, 2008 at 11:53 | #20

    That works fine if the other industry players are all heavily regulated and accept the dominance of the GOC – but the way Fannie and Freddie have been working in the market with their implicit government guarantees really made them a complete anachronism – unnessary and distorting.
    As I said previously, they should have been cut off long ago. Let’s hope something good comes of this, either that they disappear (unlikely) or that the market is told, explicitly, that this is the end of the guarantee.
    To be honest, all I see in the short term is another muddle from a US government that long ago lost any right to call itself fiscally responsible.
    Medium term – perhaps the next government will take advantage of any recovery to cut them off.

  21. July 18th, 2008 at 09:16 | #21

    Good – the website seems to be working today

  22. Smiley
    July 18th, 2008 at 09:28 | #22

    but the way Fannie and Freddie have been working in the market with their implicit government guarantees really made them a complete anachronism – unnessary and distorting

    I’m of the opinion that the whole sub-prime market was an anachronism of deregulation or an inability to police the regulations.

    The mortgage broking industry came about through deregulation and increased competition. In typical style, the mortgage broker’s income was tied to the volume of loans they made and not the quality.

    While Fannie and Freddie have been around for a while, the mortgage broking industry and the sub-prime crisis seem to have arrived at about the same time.

  23. Donald Oats
    July 18th, 2008 at 09:48 | #23

    Seems that my backhoe comment on July 5th (Political economy of networks) turned out to be unintentionally prescient. Interesting to see that card failure hadn’t been also considered in the risk analysis. Or even simpler, checking that all cables are on the Dial Before You Dig database http://www.dialbeforeyoudig.com.au/

  24. observa
    July 18th, 2008 at 10:50 | #24

    Via Greg Mankiw here’s a pretty good summary of Freddie Mac and Fannie May by Larry Summers-
    and here’s what’s needed
    No doubt emission trading rights should fill the bill very nicely

  25. July 18th, 2008 at 13:00 | #25

    You are right, banks did not manage the risks that come with lending to the poorer members of society well – so wealth got transferred from bank shareholders to the poor. If you see this as a bad thing, well, fine.
    Fannie and Freddie have been getting worse as an anachronism as the marketability of the sorts of loans they normally package has increased. They act like government guaranteed whales in the market place, sopping up most of the action in the areas they deal. The regulatory failure has been to not stop them from doing it. The best solution (IMHO) would have been to withdraw the implicit (now semi-explicit) guarantee from them and making it plain they could fail.

  26. observa
    July 18th, 2008 at 13:15 | #26

    Andrew’s banks come out fighting-
    Nothing to do with his 4 pillars of propriety-
    although you’ll notice that lone ANZ exposure to the CDS market is over $1000 for every man woman and child in Oz(in short scale billions we trust hopefully)
    Meanwhile stockmarkets have a dead cat bounce on news JP Morgan’s results are better than expected, while investment bank Merrill Lynch keep flogging the family silver-
    But oil and commodity prices are showing a welcome pullback as companies like Qantas lay off staff and cut routes and services and I’m supposed to fail to see the connection and the implications for commodity exporting Oz real soon. Welcome to 1929 Groundhog. Remember it wasn’t Black whatever day it was, but the dead cat bounces over the next year or so that enticed the blind and foolhardy back in all the way down as it wiped them out.

  27. Smiley
    July 18th, 2008 at 13:28 | #27

    so wealth got transferred from bank shareholders to the poor

    A negatively amortised loan (in my opinion), is not a transfer of wealth. At least not in the direction you’re suggesting.

  28. Tony G
    July 18th, 2008 at 13:37 | #28

    “I’m of the opinion that the whole sub-prime market was an anachronism of deregulation or an inability to police the regulations.”

    Sounds similar to the last time Freddie and Fannie got into trouble during the S&L crisis.

    cause 4 of Savings and Loan crisis:

    “Increased competition on the deposit gathering and mortgage origination sides of the business, with a sudden burst of new technology making possible a whole new way of conducting financial institutions generally and the mortgage business specifically.”


    Any inference or connection in this post to interest rates, banks or government policy; either expressed, implied or interpreted is unintentional- please do not delete.

  29. July 18th, 2008 at 14:35 | #29

    The borrowers got the use of a home for two years or more and paid out very little. How is that not a transfer of wealth to the borrowers? If it were a government program you would have called it social housing and been out there marvelling at how wonderful governments were.
    Banks are just like any other business – and just as capable of making a wrong call. I just get annoyed when the uninformed try to make them out to be something they are not – special in some way, able to create money in some special way, or some other currently popular, but wrong, theory that has entered their heads.

  30. Smiley
    July 18th, 2008 at 15:27 | #30


    If it had been a government program it would have been less ephemeral and I could have marvelled for much longer. Besides, describing a market in which house prices are rising at unsustainable and alarming rates as a “social program� is quite amusing.

    On your other point, banks are a special case, because when they start failing on mass, bad things start happening in the rest of the economy. They are at the centre of our economic system, so they have to be protected from the spivs.

  31. July 18th, 2008 at 17:23 | #31

    I am trying to think of many governemtn programs that do not change from year to year, much less over any longer periods. Nope – can’t think of many.
    There are many industries that, if they fail on mass, would cause immense harm to the economy. In any case – that is not sufficient. You also need to demonstrate that the regulations actually help. There has been precious little evidence of that.

  32. Smiley
    July 22nd, 2008 at 11:04 | #32


    I’m somewhat tired of this line of argument, but just to make a final point: the idea that much of the lending that went on during the sub-prime fiasco was “predatory� doesn’t really stack up with your suggestion that there was some sort of altruistic motive behind this unsustainable practice. And I also suspect that building “McMansion� style tract housing in the Californian desert will be seen as extremely impractical in the years to come. You appear to be using a brand of particularly strong binoculars in an attempt to find a silver lining to this cloud.

    As for the value of government, it doesn’t take me long to think of a few things that governments have managed to deliver in western societies. Things like Medicare, PBS, transportation and utility services networks, reasonable public schools,… I could go on. While the actual work for many of these services have been “sub-contracted� out to private enterprises, government has provided the framework in which the services can be delivered in an efficient, safe and sustainable way.

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