Light years from the truth. If there is one thing the last week should have taught people it is that we believe the words of politicians and bankers at our peril. For well nigh a year now the world’s political and economic leaders have been giving assurances that the financial system is basically sound despite those inconvenient problems with American housing loans. All will be for the best in this best of well regulated worlds. And woe betides anyone who dares to suggest otherwise for they shall be guilty of talking down the economy which is a far greater crime than telling untruths.

Australia’s Opposition Leader Malcolm Turnbull was faced with that grievous charge of truth telling yesterday when he suggested that there was a trace of hyperbole in the description by the Governor of the Reserve Bank Glenn Stevens of the condition of Australian banks being “light years away from what is happening in other banking systems around the world.” While saying he took comfort from the Governor’s words, Mr Turnbull had told an interviewer “I don’t know that I’d use the word ‘light years’, I think … I’d express it slightly differently.”

Our Prime Minister Kevin Rudd puffed himself up with righteous indignation to declare “the most important thing is that, at times like this, at times of great global financial crisis, no-one — repeat: no-one — including the Leader of the Opposition, cast any doubt over the authority of the public statements by the Reserve Bank governor about the health of this nation’s financial institutions.”

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With this attempt at political point scoring Mr Rudd was suggesting that his opponent was casting doubt upon the accuracy of the general observation that the Australian banking system was sound. By so claiming, and by drawing attention to it, the Prime Minister was thus guilty of the very thing that “no-one — repeat no-one” should do.

A wiser course. Surely the wisest course for Labor in publicly commenting on this financial crisis would be to praise the other side of politics rather than attack it. Yesterday was a day to thank the former Treasurer Peter Costello for his commendable efforts over the previous decade and a bit to strengthen the nation’s regulatory system. The clever politician, knowing that no-one really knows how this event will eventually pan out, would put on the record an assurance from the regulator that Labor had inherited a sound and more than adequate regulatory framework. In the unfortunate event that the blame game eventually has to be played because of some local financial disaster it would then be much easier to let the backbench author take the blame for it.

Welcome to the wonderful world of capitalism . There was a certain smugness about Russians when booming oil and metal prices enabled them to spend up on life’s little luxuries like mansions in the south of France and English football teams. This capitalism was a very good system for the former KGB officers and their mates who managed to grab control of privatised assets and did enough deals with the likes of Vladimir Putin not to have to give them back.

A jolly good time was being had by all and there was even some evidence of a trickle down benefit to the ordinary people. So it is more in sorrow than in anger that I bring you this report from today’s Pravda website:

Financial crisis to boost prices on food 30 percent up

The current financial crisis will strike a significant blow on Russia, the former vice prime minister of the Russian government, Boris Nemtsov said in an interview with Novy Region news agency. The prices on basic foodstuffs may rise 30 percent, whereas small banks will go bankrupt, and many Russians will thus have to forget about consumer loans.

September has become a black month for Russia, Nemtsov said. The politician advised all Russians should purchase foreign currency, particularly US dollars, to rescue their savings. The crisis may bring only one piece of good news for the country: the prices on residential real estate may drop, he added.

“The current events and the default of 1998 have only one thing in common – they both are financial crises. The current crisis has a completely different nature. In 1998 Russia suffered from a crisis of the budgetary system, whereas the current events will mostly affect the corporate sector – banks, state-run companies and corporations, such as Gazprom, Rosneft and others,” Nemtsov believes.

The former vice prime minister believes that the nation’s entire banking sector may suffer from the crisis, although small and medium-sized banks will be the first to announce bankruptcy.

“Russian banks have been working at the expense of cheap and long-term funds from the West. The funds have run out today, and the banks have found themselves unable to loan up as a result. On the other hand, they have been giving too many consumer and mortgage loans recently. They are long-term loans that will be returned only in many years. That is why, small and medium-sized banks will be filing for bankruptcy now,” the politician believes.

That the funds from the West have run out is partly due to the financial crisis affecting banks everywhere but made worse for the Russians by the fear the Russian government has engendered among Europeans by the decision to invade Georgia. Toss in that falling oil price with its reduction of export income and we will soon see how resilient is the hybrid system combing capitalism with state control.

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Peter Fray
Peter Fray
Editor-in-chief of Crikey
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