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What do you mean there’s a global financial crisis?

Leon Carter

by Leon Carter

21 Apr 05:50am

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Filed under: Barack Obama, Economy, Gfc, Kevin Rudd, Nick Clegg

22 comments

American authorities have charged Wall Street mammoth Goldman Sachs with fraud. British and German authorities want to know more, too.

There's nothing to see here… Picture: AFP

President Obama is promising to toughen banking regulations.  These include shining a light on the murky world of derivatives, the inter-twined financial products so complicated they almost brought the whole system down. 

More consumer protection is promised, too, particularly on the credit card front.

Canada’s government unveiled new guidelines for credit cards recently.

And Nick Clegg, the leader of Britain’s Liberal Democrats and star of a recent debate, is proposing a tax on banks to reduce the UK’s deficit. It ballooned, in part, after taxpayers bailed out its reckless banks, which were so chastened by their failure they doled out billions of pounds in new bonuses.

Elsewhere in Europe, new calls for more responsible bank lending are popping up. And of course there are calls for a new, miniscule tax on financial transactions like derivatives to help restore governments’ balance sheets and fund foreign aid.

Throughout the G20, countries are showing they’re serious about cracking down on banks behaving badly.

Meanwhile, Australia’s government seems to have abandoned the field.

It’s not as if we have no problem. Last year, consumer debt exceeded GDP for the first time ever. We owe about $50 billion on credit cards alone. And the gap between what the Reserve Bank thinks interest rates should be and what the banks charge is higher than ever.

Banks overseas aren’t the only ones who have an odd way of showing taxpayers how much they loved the support. Our very own institutions, who enjoyed risk-free banking courtesy of us all, have said thanks by letting us pay more so their padded profits can keep going up.

Can we ask where Kevin Rudd went? Gone is the Prime Minister, quick to cash in on a crisis with essays decrying the downfalls of casino capitalism. Gone is any hint of new regulations aimed at stemming a consumer debt crisis here. And if the banks decide to run monetary policy for their own benefit, not Australia’s, well, it’s a bit of a slap on the wrist and not much else.

About this time last year, Mr Rudd couldn’t wait to take his seat at the newly powerful G20 table. There, he relished talking about weighty, global matters as part of a fancy new club.

Ah, to hang out with Obama and Brown, Merkel and Harper, and marvel at what could be done to improve financial regulations.

Those were the days. Perhaps when the club next meets in June in Toronto, Mr Rudd can dust off his essay and see if anyone would like to re-read. We suspect, however, the nitty-gritty of governments actually doing something might prove more substantial gruel.

There will be those, of course, who say Australia has no problem to fix. Our banks are profitable, and the housing market is strong. And so they are. Just as they were in the United States and Britain before mountains of debt and reckless banking finally caught up.

Still, here we are, with consumer debt levels at 160 per cent of disposable income and rising each year, pretending there’s no problem that needs fixing, and in the process, letting banks continue indebting Australians while our government seems to have nothing to say.

You can learn more, and complete a confidential survey on banking, at better-banking.org.

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Most commented

22 comments

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    • John A Neve says:

      06:01am | 21/04/10

      Leon,
      But there is no problem, there are a many bloggers on this site who have told me that !!  They seem to think our national debt and private debt are unrelated.

      Many people don’t seem to understand most of our money is borrowed overseas and what a country and it’s people owe impacts on the nations credit rateing.

      Reply

    • WKH says:

      07:56am | 21/04/10

      Wait for it! It’s all Howard’s fault….Must be! Everything else Krudd has/hasn’t done has been.

      Reply

    • Des says:

      08:03am | 21/04/10

      The banks in this country have been simply outrageous. They do however have competition for the award for greed and indulgence. The world of financial advisers - fees, commissions, brokerage, trails - badly needs an overhaul. Too many people who have attempted to plan and work to be self funded retirees have lost substantial sums over the last four years to the combined effects of the GFC and the poaching of their remaining funds by a superannuation system that in large measure is a closed system established for the unrestrained advantage of financial advisers who can offer little sustained advise but expect anywhere between 0.9% thru 1.5% of your assets to do so and for each year too.

      Banks and financial advisers have a license to print money in this country as a consequence of inept policy settings and an unwillingness of successive governments to remind these institutions they have a social responsibility too as well as a responsibility to take care of their CEO’s and senior executives. Little wonder the average person aspires to seek the age pension at retirement when they observe the way self funded retirees have been ripped off for trying to be independent of handouts. It does not pay to save and be independent of welfare in one’s retirement years in Australia. You are mad to do so. It is irrational to encourage people to save for their retirement years given the experiences of the recent past and the practices of banks and financial advisers within the superannuation system. Save to be ripped off, get real.

      Give us a simple superannuation scheme now and one that avoids the pirates that prey on the unsophisticated retiree who finds it impossible to negotiate the complexities of the current scheme and are compelled to seek advice only to find they have fallen prey to an outrageous fees schema.

      A reform such as this will rival, in electoral significance, any reform of the education system, the health system and the tax system. Self funded retirees have been overlooked. They have been taken for granted, as usual. Policy makers do not have to ‘worry’ about them by virtue of the fact that they try to look after themselves. Many who retired in the last five years entered a system that has damaged them badly. So, discipline the banks and sort out super, quickly!

      Reply

    • iansand says:

      08:23am | 21/04/10

      Isn’tt he rest of the world racing to catch up to Australia in the way the financial sector is regulated?  Heard of APRA?

      Reply

    • Galbraith says:

      08:59am | 21/04/10

      The GFC isn’t a crisis as such but the inevitable response of a very free market. When markets were deregulated (elsewhere) in the 1970s they were left to their own devices.

      Over the years they rose and fell as you would expect. There were less regulations too. This is mainly in the US.

      Then there came the consumer credit binge where people have to have everything now and put it on the credit card. This is what caused the GFC. People spending big on houses they couldn’t afford with interest rates that had balloon payments. When the payments were due they couldn’t afford them and the system crumbled.

      This was in the US more than in Australia.

      In Australia, the banking system is still regulated pretty stringently. There are controls on who can lend what and how much. Not as tight as they should be.

      We should be worried about consumer debt levels though. But who is going to tell your typical McMansionite bogan that they can’t have another plasma from Harvey Norman on interest free finance for 18 months or another credit card?

      They’d vote them out because it’s never their fault. They deservice it (if you ask them).

      Reply

    • Timbo says:

      09:13am | 21/04/10

      I always liked the “Fight Club” premise - wipe everyone’s debt to zero and start again. The amount of finanical bollocks that has been created over the last 10 years in a worldwide system that is now proven to be so fragile that whole countries can be declared bankrupt if someone sneezes in Wall St?? Giving loans to people on welfare, then selling that debt to other banks who then sell it on again in some mad stupid game of “musical chairs”? Banks dragging their heels to lower interest rates, but falling over themselves to be first to raise them again. Stock markets that operate on the “herd mentality” and rise and fall based on whims.

      The super stupid thing about it all is that is all made up and built on trust!! Can you actually go to a room and put your hands on the 100 million dollars that your company is supposedly worth? I’d guess not, and based on the whims of the market, that 100 mil can either turn into 200 mil or 10 mil. I read of situations where someone’s found an article in Google that was 4 years old on a certain company, didnt check the date and started a panic and the company’s share price plummeted.

      As you can guess, I’m not a financial person smile but what I’ve seen, we’ve hung our whole way of life on these crazy systems. I’m thinking seriously of installing a safe in the concrete slab of my house and sticking my money there - reckon that’s as safe as any of the banks. It doesn’t stay in my account long enough to get the piddling interest anyway.

      Reply

    • David C says:

      10:01am | 21/04/10

      There is no point in adding layers and layers of new regulation if it is going to be as useless as that which was in existence pre GFC. There were a multiude of factors in play that added to the meltdown and a major one was the fact the regulators didnt do their job.
      On anoher point that I am sure will be thrown around a lot over this article. Credit is like Maccas, no-one forces you to buy. Maybe what is needed is for the consumer to take some responsibility for their own actions?

      Reply

    • timbo says:

      10:23am | 21/04/10

      @ David

      Thats a good point - you dont have to have this credit. But the banks offered it, and people without thinking just signed up and got into serious messes. That responsibilty lies with us the consumer, not the banks (tho you can argue that they have a ethical responsibilty about offering insane amounts of money to just about anyone). Our society is so caught up with the “must have now” attitude, but that’s not the banks fault either. Sure they’ve used it but I dont think they created it.

      As a society, I think we need to slow down and better distingush between “wants” and “needs” - big screen TV is a “want” verses a house, which is a “need”. As parents, we need to pass that attitude onto our kids - the next wave of consumers.

    • David C says:

      11:23am | 21/04/10

      Timbo I just think people need to take responsibility. They can buy 100 big screen TVs if they want, I just would like them to ensure they are in a fiscal position to do so.
      .

    • Brian says:

      10:19am | 21/04/10

      APRA - yep thank the Coalition for that, opposed Labor.

      You cannot trust Labor with money.

      Reply

    • FS says:

      03:17pm | 22/05/10

      APRA - is a toothless tiger. What saved Aussie Banks were the outdated systems which prevented them from transacting CDS and other Credit instruments in a big way.

    • TB says:

      11:04am | 21/04/10

      Goldman Sachs have only been charged with civil fraud - the worst that can happen to them is that they can get slapped with a fine (which, knowing Goldman Sachs, they’ll try to deduct from their taxes as a business expense). You also have to keep in mind that they’re being investigated by a SEC that did absolutely NOTHING about Bernie Madoff, despite being aware of his antics for half a decade. Furthermore, Goldman Sachs is part of the great revolving door between business and government in the US - Henry Paulson, the previous treasury secretary, was CEO of GS prior to taking his job of securing bailout money for all his Wall Street cronies.

      The reality is that the investigation of Goldman Sachs is little more than a show trial, a farce being perpetrated to generate the illusion of justice for the outraged masses. Just like the Enron and Worldcom scandals that came before - a handful of people fell on their swords, and then it was (corrupt) business as usual. Only an idiot or a lunatic would expect a different result out of the investigation of Goldman Sachs.

      The idea that all is well down under is delusional thinking. On top of all that credit card debt we have a housing bubble far worse than the ones that formed in the USA and UK, and the issue is being explicitly ignored (and by doing so, it is simply being exacerbated).

      Reply

    • TB says:

      11:15am | 21/04/10

      Oh, and the talk of bringing regulation to the derivatives market is also just bunk - the Commodities & Futures Trading Commission in the USA has just allowed Cantor Fitzgerald to open up a futures market for Hollywood movies. I don’t know about you, but the expansion of insane derivatives trading to the Hollywood box office doesn’t exactly give me any confidence in the CFTC.

      Reply

    • Nick M says:

      11:18am | 21/04/10

      The problem is that we all want to make a heap of cash with no risk,the self funded retiree’s took a gamble and lost,that’s tough,live with it.The same as those who gambled on the stock market and also lost,people who took out margin loan’s on their property are now stuck with high mortgages that they may or may not be able to service,all this coupled with the fact that the banks and other financial institutions lent money out without really having any safeguards in place to ensure that the money that was lent could be paid back if everything crashed.Everyone wanted it NOW,a new car,a bigger car, a better plasma etc.People are just as much to blame as the banks,i think something should be done with regard to the interest rate that is set by the RBA in so much that what a bank then passes on to a customer can’t be more than a certain level this is esp true of credit cards where the rate is as high as 20% this is plainly a rote from the banks who make a heap of profit from that.The Howard government seemed to think it was their handling of the economy that brought about massive house price rises,and big profits from companies but this was happening worldwide,nothing johnny did could have stopped that,i remember when the mining boom started they said how good everything would be from this boom but how come we still see hospitals struggling to get by on old and outdated equipment,schools that have below par heating/cooling the list goes on where has thes money gone ????.Why is it that these major banks and other companies like woollies,Coles,BHP etc declare massive billion $ profits but only pay 20% or less on this profit where as i as a normal tax payer have to pay 30% on $40k,this is something the tax office should stop right now,also the tax dodging perks enjoyed by the ceo’s and their cronies in the form of bonus’s and share deals,thank you for reading.This is just my view a lot can be done to right the system its just that people don’t want to do something about it taking the stance that someone else will do that.Stand up now and fight,lobby your mp,speak to your union,make your thoughts known

      Reply

    • Gram Ah says:

      07:04pm | 21/04/10

      Paragraphs please Nick M!

    • paulm says:

      05:41pm | 21/04/10

      When you say $50 billion credit card debt, is this the instantaneous snapshot, with a big chunk of this getting cleared every month prior to interest being charged?  Because my family’s credit cards are often about $2-3k in debt, but they are cleared before interest is charged every month.  So its just a way to keep the money in our bank account offseting our mortgage for that little bit longer during the interest free period, rather than paying cash for items, plus you get the reward points (which I think are a waste of time but my wife loves).  Also, how many Australian’s have a credit card?  If its say 15 million, that’s $3333 per person, so hmmm, I guess a lot of people don’t clear their cards?  Be interested to read more on this.  Also, a friend commented that banks are now only approving 17% of mortage applicatins when it was more like 60% prior to the GFC - not sure how true this is?  So does this show that the banks have realised we are approachign a limit and they have become a lot more cautious?

      Reply

    • Shifter says:

      06:17pm | 21/04/10

      Rudd’s Labor government was elected in ‘07, what exactly have they completed since then. I know there has been a lot of talk, but I struggle to think of anything major other than handing out money that we did not ask for.

      If anyone could enlighten me and prove me wrong I’d love to hear about it.

      Reply

    • Graham says:

      10:02pm | 21/04/10

      Indeed.  The global economy was geared into near oblivion by a high-flying set of Masters of the Universe, working under the cover of de-regulated, neo-liberal vacuity. 

      It was left to the evil-State to (a) rescue the gamblers, (b) inject liquidity and solvency and avoid confidence in the general economy spiralling.

      Yet within a year or so we’ve moved on.  All too complex.  Better diversions afoot - Lara Bingle’s love live, the latest doofus droppings from Mr Abbott’s febrile mind or Mr Rudd’s spin-meisters.

      Reply

    • TC says:

      10:06pm | 21/04/10

      Come on Shifter try a bit. Just this week they made collecting the dole easier

      Reply

    • Harquebus says:

      12:04pm | 22/04/10

      There is no global financial crisis. There is a global oil crisis which is the real cause of economic decay which has been happening for thirty years, since the US started importing more oil than it produced.
      There is no solution. Sovereign debt will never be repaid. The proverbial will hit the fan around 2012 to 2015 and governments know this. Why aren’t they saying? Because they don’t want to cause panic.
      After the proverbial has splattered, governments will say we didn’t know and the public will just have to suffer a world with very expensive oil.

      Reply

    • TB says:

      07:09pm | 22/04/10

      “There is no solution.”

      Incorrect - there is a solution, just not one within the confines of the (hopelessly outdated) socioeconomic system we live in.

    • Harquebus says:

      09:16pm | 22/04/10

      One to you TB.

      Reply
 
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