There’s an air of panic creeping into media coverage of the financial crisis, and it’s not helping anything.
Kerry O’Brien was semi-hysterical while interviewing the Prime Minister last night, in a shocking performance that seemed to suggest O’Brien was convinced the Apocalypse was mere moments away. Evidently Kerry had taken Steve Keen’s claim the previous night about a looming depression to heart, which was why he was babbling things like
The judgment of the market, day after day is, you guys, governments, George Bush, Gordon Brown, whoever, we don’t really think you know what you’re doing or we don’t think you’re doing enough. That is the market’s judgment, right or wrong.
In fact O’Brien wouldn’t even let Rudd answer a number of his questions, so eager was he to spell out how awful things were.
O’BRIEN: Whether that’s so or not, do you agree with Professor Keen’s assessment, he’s been studying this for a long time now, he’s been warning about this for a long time now. Do you agree with him that Australia’s housing values, our real estate values, are unsustainable and secondly, that developers by-and-large are not going to invest in new land and housing developments because they know the capital gain is simply not going to be there for the foreseeable future?
PM: Well Kerry, again, I’m not in the business of providing advice on the future shape of the Australian housing market, because it differs…
O’BRIEN: But surely you have to be vitally interest in this because…
PM: I am, Kerry…
O’BRIEN: … the issues of homelessness, the issue of adequate public housing, the issue of adequate housing generally, the issue of young people being able to get into homes, the issue of rental prices, the issue of people who’ve got very big mortgages watching the value of their home go south?
You forgot to throw in terrorism, abortion, reconciliation and Middle East peace as well, Kerry. Maybe you need to talk to some economic commentators other than the guy presenting the single most wildly pessimistic forecast. And understand that equity markets do not Equal the real economy – a view that seems disturbingly widespread among journalists and editors.
Now the focus is turning to guaranteeing bank deposits, a problem started by the Irish when they gave into temptation to do so, despite the problems it instantly created for everyone else. For most of the 1990s and this decade, the Irish have been lecturing the world about their “tiger economy”. Turns out their capacity for economic management didn’t last five minutes in a real economic crisis, and its failure promptly caused chaos across Europe.
When the crisis is over, there should be a day of reckoning not merely for the investment bankers and ratings agencies involved, but also for the politicians, like those in the Irish Government, who lost their heads and pulled stunts like this.
David Uren reports in The Oz that Government is “under growing pressure” to guarantee bank deposits. But where is the pressure coming from? He doesn’t say. There’s no “pressure” beyond journalists wondering if, because they’re doing it in Europe, we should be doing it here. There is zero case for guaranteeing deposits.
In fact there’s a strong case against it. Our banks are exploiting the crisis to further entrench their oligopolistic position by buying out ailing competitors. They will continue to make record profits. Given their strong and strengthening position, shares in the major banks would have to be one of the best buys on the stock market currently. A deposit guarantee would be a taxpayer gift to these rorters and Shylocks worth billions, essentially committing the Government to look after their creditors no matter how badly they manage their funds.
Moreover, by its very nature it would raise the question of whether there was actually something seriously wrong with the banks that no one knew about.
But what if there’s a run, people say. Maybe I’m too young, or haven’t watched It’s A Wonderful Life enough times, but I can’t get excited about the prospect of bank runs. Bank runs were fearful things when banks were places you put your money. These days they’re places you borrow money from, not give money to. Their loan books and asset bases far exceed the value of domestic deposits, meaning there’s no way anyone could be out of pocket if depositors have first call on bank assets – which in Australia they do.
Rudd and Swan have done a good job so far of keeping their heads, reassuring voters and contrasting our prospects with those of Europe and the US. Just because the equity markets are in the grip of panic doesn’t mean the media has to yield to irrationality as well.