Friday, February 27, 2009


Kevin Rudd used 7000 words to tell us how we got into this crisis and how transformative it will be. Apart from heralding a return to activist government, he didn't tell us anything about the future he would like to create from the wreckage.

I'm not sure how many other Australians did their penance but last week I took some time out to read Kevin Rudd's essay in The Monthly magazine entitled The Global Financial Crisis.

When I heard that the Prime Minister had given up much of his Christmas break to pen the piece, I was keen to read it. I read with interest his previous Brutopia piece in The Monthly back in 2007 and I looked forward to some special insights and vision in this latest piece. I did not get either.

The Prime Minister provided Australians with an account of the history that led us to our present crisis. Anyone who has spent anytime reading the work of American economists Paul Krugman and Joseph Stiglitz (both of whom are referenced in the piece) and many others would have found nothing new in Rudd's history.

And Rudd's attempt to pin the whole crisis on an ideology embodied solely by the Liberal Party here in Australia is nonsensical. The entire political establishment jumped on the small government, low regulation bandwagon. John Howard, Malcolm Turnbull and Peter Costello have all been quick to point out the warm embrace that Australian Labor federal and state governments, alongside the centrist Blair and Clinton administrations have given to the ideology that created the crisis. The Liberals might be closer than Labor ideologically to the thinking that created the crisis - but if so, the margin is far far slimmer than the Prime Minister suggests.

The most egregious failure in the piece however was not its account of the past, it was the absence of any vision for the future. Historians have the prerogative of writing about the past. In a time of crisis, Prime Ministers are surely compelled to give us a substantial vision of how we should and will respond to the crisis. The only clues the essay provides to the Prime Minister's vision for the future is a return to late 70s early 80s social democracy.

Rudd convinces us of the "truly seismic significance" of the crisis only to take us back to pre Neighbours Australia for the policy solution. What a let down.

I really didn't need Kevin Rudd to provide an historical account of the crisis. There are plenty of these already. What I hoped for was a well argued case for change - not just a statement of the macro obvious about the need for more activist government. Kevin Rudd should have given Australians a sense of how he would like Australia to look after the crisis - the tax system, the health system, the education system, the pension system, business regulation, economic priorities etc etc and how his vision might might come to be. This would have made for interesting reading. But it would have required imagination, courage and policy specifics.

If the Prime Minister succeeded in persuading us that we really are at a "turning point between one epoch and the next", he did nothing to convince us that he has the vision to lead us into the new epoch.

His focus on the macro issues and his refusal to meaningfully address any of the specific challenges thrown up by the crisis - apart from the obvious issue of financial regulation - was cowardly. I have an increasing sense that many of his prescriptions for economic recovery are the same.

Kev probably should have focused on his tan.

Thursday, February 19, 2009


Peter Costello's throwaway reference to Kevin Rudd's fluency in Chinese is more revealing than his empty contribution to the Chinalco - Rio discussion.

Peter Costello's piece in yesterday's Sydney Morning Herald on Chinalco's bid for a substantial stake in Rio Tinto raised some interesting points.

Strangely, he avoided what many regard as the biggest issue of the bid - whether Chinalco, as an enterprise wholly owned by the Chinese government will be a conventional investor seeking conventional returns, or a stooge serving the Chinese hunger for secure and well priced resources.

It's a classic oversight from a man with a history of blindspots. Costello managed to serve at the top of John Howard's government for more than a decade without a plainly argued analysis on issues like the Iraq War, children overboard, mandatory detention etc etc. It's like certain parts of the man's brain have been removed. Paul Keating's description of Costello as "all tip and no iceberg" nailed him.

I found something else in the article more objectionable than this omission though. Costello writes, "The ultimate decision on whether this proposal will be allowed under Australia's foreign ownership laws must be made by the Treasurer. Our Chinese-speaking Prime Minister will undoubtedly favour the proposal."

The Liberal Party's disgust at Kevin Rudd's fluency in Mandarin has been festering since Rudd was the Shadow Foreign Affairs spokesman. Downer could not disguise his contempt for the idea that his opposite could converse with the Chinese in their language. Now, once again, perhaps one of the most truly impressive things about Rudd is turned against him in an appeal to the most shameful of Australian failures - our monolingual and monocultural superstructure in a raucous multilingual and multicultural nation and region.

The implication of Costello's line is that Kevin Rudd's Chinese language skill distinguishes him from the rest Australia's monolingual white mass and somehow compromises his capacity to make decisions in Australia's best interests when engaging China. It's a line that would have flowed smoothly from the mouth of Pauline Hansen and her cohorts.

Kevin Rudd's knowledge of China and the Chinese language are great assets to Australia and a great example to future generations. Impugning him for this special talent is the work of the most base political operatives.

Also see - If you don't speak English, don't speak at all

Thursday, February 12, 2009


Telstra CEO Sol Trujillo's foray into the debate about executive salaries in companies being propped up by government money is interesting.

Earlier in the week Telstra CEO Sol Trujillo told a conference in Brisbane, "If you're the executive of a company that chooses to become government-dependent in terms of your future, they need to accept certain limitations on their compensation (salaries) because they're using taxpayer money".

Is there a company in the country that has been more dependent on the Australian government and people than Telstra?

As he reflects on his earnings in the last financial year ($13.4 million), he might like to consider that at Telstra, he took over a company that was previously a government monopoly that inherited a huge amount of benefit from that priviliged position including until recently a continued government stake. Australia's regulatory framework has long rewarded Telstra. The Howard government was especially torn between the interests of the Australian economy and those of the mum and dad Telstra shareholders to whom the great Telstra share investment dream had been sold.

Telstra's share price and Mr Trujillo's package have benefited enormously from government decisions including the decision of the Future Fund to invest heavily in Telstra shares. The Future Fund holds a 16% stake in Telstra that at last check was valued at around $7.6 billion.

The wider story though is this. Every company is dependent on government in a huge way - positive and negative. And to that extent, the community has a rightful stake in every salary. That's not an argument for over regulation of salaries. It is simply a statement of fact. Travel the world and look at the wealthiest and most functional societies as well as the poorest and most dysfunctional. The government's role and the functioning of the social contract is what distinguishes Australia from Afghanistan or Norway from Nigeria.

Telstra is a beneficiary and casualty of good and bad decisions made by government on all kinds of issues including such diverse policy areas as health, education, law enforcement and superannuation - not to mention good and bad regulation.

If it's one lesson we have learnt from the current financial crisis, it is that there is little correlation between salaries earned at the top and a real contribution to the economy - not to mention society. Many of those at the top of the wealth ladder are most culpable for the current crisis.

CEOs have been telling us for so long - especially in the finance sector - that if we don't pay these huge sums, we'll compromise our future. And look where that has gotten us.

The basic issue is that we're all a lot closer together in this process than your average CEO wants to pretend. The nurse working shifts at the local hospital, the garbage collector doing the morning rounds and the teacher doing hard yards in a tough school have been massively underappreciated during the past two or three decades while the CEOs have convinced us that the supposed genius resident in them is worth so so so much.

I didn't buy that before the crisis and the crisis has just proven the point.

Sol was right to back government controls on the earnings of companies in which the government has a big stake. Only problem is, he forgot to look in the mirror.

Wednesday, February 11, 2009


It's been a very civiliised economic crisis to date. People are a lot poorer and many are facing financial ruin. There must be some anger building. The young unemployed? HECs indebted graduates? Victims of AAA rated investment products that are now worthless?

Commentary on the economic crisis and its likely impact on China frequently refers to a nominal growth threshold of 8% below which China's political stability is said to be threatened. I am curious about what that number is in the developed world?

It is conventional wisdom that countries with a functional safety net are a better bet for social stability during crisis than countries like China where the safety net is weak or non-existent. Of course they are.

Yet it occurs to me that there are many more complex issues at play in this question - and Western countries would do well to run an analysis about the fragility of their own systems.

I hope confidence in our social and political institutions is proven better founded than the confidence we once held in our financial institutions and their governance.

A rarely acknowledged factor mitigating against political instability in China is the relatively recent experience the Chinese have of the terrible hardship and brutality of political chaos. The ruthless effectiveness of Chinese authorities in dealing with political insurrection is another factor.

A decision to launch a major political challenge in China is a massive commitment for which one must be ready to face the harshest penalties and even death.

A Chinese citizen may make the entirely reasonable choice that, based on the past century of history, the corrupt strong arm of the Communist Party is preferable to the likely alternative should things start to deteriorate. That decision however will depend on how desperate things become and how effectively the government can manage the crisis.

While Chinese expectations of prosperity have shot through the roof during the past decade, Chinese people also have a cautious appreciation of how fragile periods of prosperity can be. Stability and order remain amongst the most cherished things in the Chinese mindset. Even the youngest Chinese workers can see that bitter hardship remains a reality for most of the population. And they are also aware of the profound improvements of the past two decades. They are proud of their country's elevated status in the world and they credit the government for this.

It will take a massive souring of the economic landscape to turn the increasing number of sporadic protests, usually about local land and corruption issues, into a national movement.

Western analysts spend plenty of time pondering China's fragility. I have not yet seen any speculation on the likely political implications of the crisis in Western countries. Yet it seems very possible that a continuation of the current collapse may also precipitate an outpouring of anger in developed countries. While the Chinese threshold for radical political action is tempered by their collective memory of hardship, what of developed countries? What is the unemployment threshold for political instability in the developed world?

In the West, all but the most elderly have no memory of serious hardship. World War II and the Depression are remembered only by those in their late seventies and older. Political stability is taken for granted.

The developed world has provided a linear life course for most of its people for more than fifty years. Things don't change very much and people's lives progress along a reasonably predictable course. Increased wealth and technology sweetens the course - but most people in their forties and fifties seem to be doing things the same or similar to what they were doing twenty years ago. Not so in China.

In Australia, the past decade has created new expectations of ongoing prosperity from rising property values, soaring equities - and the bonanza from a booming resources sector. There seems to be a great danger that the promise of a linear life is threatened.

Yet it's not like the boom was that good. Plenty of wealth was created and huge chunks of it found its way into the pockets of the financial engineers that brought us the present crisis and their friends in the top 1% bracket of wealth. And despite all that prosperity, our health system is a shambles, our public schools and universities are run down and our infrastructure is in a state of neglect . We couldn't fund our projected health care and pension costs during the good times - six months ago. How are we placed now?

If China's political fragility is based on a disempowered minority facing severe economic hardship, Australians might consider the situation here. We should not assume that our democracy and a freeish media provide empowerment for all stakeholders in the community - especially the disadvantaged. And we should not assume that a safety net that leaves its dependents in poverty - especially those who didn't see poverty coming - is a guarantor against fury.

Once there's enough rice in the bowl, poverty is relative. And a vote alone does not a democracy make.

Let's hope that the doomsayer who predicts "this crisis will get worse before it get worse" is wrong.

Wednesday, January 14, 2009


Paul Sheehan's failure to declare his relationship with the NSW Jewish Board of Deputies marks another low point in the increasingly rapid decline of the Sydney Morning Herald

Paul Sheehan's piece in Monday's Sydney Morning Herald, "It's too easy just to blame Jews" was a rambling and largely aimless piece of writing. It showed no sympathy for the Palestinians of Gaza or the Palestinians in general and it made many odd and disconnected arguments - including a bizarre shot at my home town, Auburn here in Sydney.

Most of all though, it was remarkable that such an ordinary piece of writing could command such prime real estate in a "quality broadsheet".

Even so, the revelation by Margaret Simons in Crikey yesterday that Sheehan's referenced visit to Israel and the Palestinian Territories was sponsored by the NSW Jewish Board of Deputies and the Israeli Ministry for Foreign Affairs comes as a shock. At no point in his article did Sheehan acknowledge his relationship with either the Board of Deputies or the Israeli Ministry of Foreign Affairs.

It's another sign that the Sydney Morning Herald is but a shadow of its former credible self. The Herald's put in a tortured few years as it's morphed from serious newspaper to local lifestyle magazine.

Problem is, I still rate Paul McGeough, Peter Hartcher, Hamish McDonald and others as favourite writers. They seem increasingly an anomoly in the overall style of the paper now though. The conflict between management's confused daily lifestyle magazine / serious newspaper ambitions seems to have come to a head - and it's hard to believe the serious newspaper will win out. Many friends who have been longstanding supporters of the Herald have given up.

Take a look at the Sydney Morning Herald website It's as downmarket tabloid as you can get. The sex scandal will always take precedence over serious news and you don't have to be a marketing graduate to know the damage that this has done to the Herald brand.

But as newspapers prepare for a year of declining advertising revenues and in some cases collapse, there doesn't seem to be much cause for hope that the Sydney Morning Herald will be any better twelve months from now.

The paper may well be carrying the overhead of a quality broadsheet with the output of a tabloid magazine. A lose lose for the bean counters and readers alike.

It's going to get much harder for those seeking quality news and current affairs. The problem for the newspapers in their race to the bottom is that the lifestyle / tabloid space is increasingly saturated.

Some crazy innovator may again see an opportunity in credible, quality news.....

Wednesday, October 29, 2008


The Republican base may have brought George W. Bush two presidential victories. This time, pandering to it may be the downfall of John McCain

Two standout moments in the McCain campaign have graphically illustrated the delusional ideology that has helped put the US on the brink of economic collapse.

The first was back in September when Joe Biden made the seemingly self evident statement that paying tax was patriotic. The comment was seized upon by the McCain Palin team as they rallied their flag waving base, to symbolise the supposed dangers of an Obama presidency.

At those same rallies, McCain talked of his plans to freeze government spending except in the "valid" areas of expanded government - defense, security and veteran's entitlements. He failed to connect the simple fact that it is tax that pays for these programmes.

McCain plays to a US nationalism that waves the flag but doesn't pay its way - much the same nationalism of the Bush years.

More recently, the McCain campaign has been referencing Obama's comments to Joe the plumber "I think when you spread the wealth around, it's good for everybody". Obama made this seemingly self evident comment in the context of a conversation where he argued for reducing taxes on low and middle class incomes (less than 250K US). Yet once again, the mainly Christian Right Republican base, is horrified at the prospect of sharing some of the enormous wealth concentrated in hands of a few with the wider American population.

This comment has been the inspiration for the psychotic screams "socialism" "it's socialism John" that have peppered the increasingly rabid McCain - Palin outings.

The United States, like every country in the developed world, has a progressive tax system that by definition "spreads the wealth around". Indeed, Adam Smith, one of the ideological fathers of capitalism enshrined the concept of progressive tax in his work.

It's just that the US does a worse job of spreading the wealth around than most developed countries which is why its health and education systems as well as its national infrastructure perform poorly by OECD standards for most of its population.

That these two points have become iconic for McCain, shows his desperation to mobilise the Republican base at a time when its policy bankruptcy has left the country on the brink of ruin - and plenty of Americans can see that now.

He deserves to be punished at the polls for that. Let's see if he is.

Tuesday, October 28, 2008


Malcolm Turnbull's empty confidence busting outbursts are the enemy of mortgage trust investors and the economy as a whole.

Any consumer of the news media during the past week - from channel 9 news to The Insiders would reasonably have drawn the following conclusions -

* That the Government's guarantee of bank deposits was made without proper consultation with Treasury and the Reserve Bank.
* That this same guarantee precipitated the freeze in mortgage funds that has occurred during the past week.

Neither of these conclusions are true.

While the first was comprehensively refuted by both Ken Henry and Glenn Stevens last week, the prevailing impression of the week remains, without a shred of evidence, that somehow, the Government, the Treasury and the Reserve Bank colluded to deceive the general public about the level of agreement upon which the guarantee policy was founded. The Australian newspaper, which created the myth on its front page, remains unrepentant in spite of the comprehensive debunking of it by those at the centre of the story.

As for the other prevailing myth that the guarantee has precipitated the freeze of mortgage funds, consider this analogy. A fire burns in two buildings. Building A contains the fundamental supplies and assets of the community. Building B is sprawling and contains some of the community's other assets - important these are - but not near as fundamental to the community's survival as those in building A. The fire brigades arrive and use all resources to extinguish the fire burning in building A with its essential supplies. Meanwhile, damage is inflicted to building B before the fire brigades can allocate resources to quelling the blaze.

Do we blame the fire brigade?

Like all analogies, this one is clumsy in parts. But there are some irrefutable points that get virtually no media attention.

* The run on mortgage funds is the result of the financial crisis - the fire. Mortage fund investors feel insecure like all investors in non-cash assets the world over. While "putting out the fire" in bank deposits made them a more a attractive asset to hold, the inherently risky nature of mortgage funds has always been a feature of these assets - and it's a feature that has brought investors higher returns in the past than boring bank deposits.
* The Government's action to sure up the banks has made every speculative instrument less attractive - mortgage funds, shares, derivatives and commercial and residential property. Should the Government be moving towards guaranteeing these financial instruments as well?

Malcolm Turnbull has revealed the reckless damage that he is ready to inflict on Australia for his political gain. If Mr Turnbull had a genuine disagreement with the Government's position in matters of such grave consequence, he would be compelled as opposition leader to voice this disagreement and advocate some alternatives. He has done no such thing. Instead he has sat on the sidelines as Wrecker in Chief destroying confidence and adding nothing to the real policy discussion.

Of course the Government should and is taking steps to try and improve the liquidity of mortgage funds but any Government actions are likely to be of minimal consequence until there is increased confidence in the basic assets of mortgage funds. Malcolm Turnbull has consistently and wilfully undermined confidence in his comments over the past few weeks.

It has been interesting to see the extent to which the opposition leader has become the champion of the victims of the frozen mortgage funds. You would think from the furore that these funds are lost. They are not. They are tied up in property which is by definition less liquid than cash.

You would also think that these investors are the only Australian victims to date of the economic crisis.

There would be few people who have not experienced a decline in wealth during the past twelve months through falling superannuation, shares property and a collapsing dollar.

Malcolm's empathy with mortgage fund investors springs from his ability to distort their misfortune to score a political point.

Many Australians have been experiencing the bitter taste of the previous decade of reckless lending and speculation for more than a year now. They weren't so lucky as to have excess liquidity available to invest in mortgage funds or shares. No, they're the people in the less privileged suburbs of Australia who have negative equity in their homes or who have had their properties repossessed.

Malcolm hasn't been able to voice any empathy for them as this might impugn him, his investment banking past and the previous Government. He's quite content to trash the confidence in our system and institutions at a time where confidence is everything. Malcolm is the enemy of confidence. He's the mortage fund investor's illusory friend.


Paul Kelly's piece in the Weekend Australian was rational and Kerry O'Brien's interview with Malcolm was the first I've seen to expose the ruthless political animal dressed up in a lawyer's eloquence and pre-crisis banker's self confidence. The AFR coverage was also measured.