Panic is a relative state. Not just in the sense of “I express grave concern, you’re agitated, he panics”, but in the sense that if everyone around you is losing their head, losing your own doesn’t mark you out as particularly hysterical.
Yesterday the Government started to panic — but given everyone else is in full “I’m a teapot” mode, they looked relatively rational in doing so.
The Prime Minister emphasised the foreign origins of his decision repeatedly and deliberately. More than any other press conference this year, Rudd yesterday chose his words very carefully, at time stopping mid-sentence to correct himself.
And the key reason he gave for offering our banks the protection of a sovereign guarantee was that everyone else had done it or was going to do it, and he wasn’t going to let our banks be disadvantaged by having to compete for international funds against second-rate, badly-regulated overseas banks that had been given governmental guarantees.
And, Rudd said, once he had committed to protecting international investors’ money, he had to protect your money and my money too — so he decided to protect deposits as well.
“I am not prepared to stand idly by in dealing with the concerns of Australians,” Rudd said.
Well, yes, politically, he couldn’t stand idly by without copping an immense amount of damage. Yesterday morning, I heard someone nearby in a cafe declare to his neighbour that “now they say money in the bank isn’t safe.” His neighbour carefully explained that money in Australian banks was perfectly safe although international investors might prefer banks with a government guarantee. “But,” his interlocutor countered, “you just don’t know.”
Kinda hard to argue with that sort of thinking. If the sophisticates of Manuka — or what passes for sophisticates in this bustling metropolis — have been set to fretting over such absurdities, then it’s probably only a matter of time before any government caves in and tries to mollify their fears.
That doesn’t change the fact that it’s bad policy — panicky policy, which may yet have grievous consequences.
Listening to Rudd, you got the impression our bankers were fighting for capital with cheating foreigners who had resorted to underhanded tactics to beat us to a dollar that could be lent to Aussie businesses and householders.
You might recognise this argument from protectionism debates. One of the worst features of the Great Depression was the willingness of countries to ramp up trade barriers because “everyone else was doing it.” This collective idiocy helped prolong and deepen the Depression.
How long before similar arguments to those about banking guarantees are advanced about other industries? How about manufacturing? What price an Obama Administration declaring a “temporary assistance package” for the US automotive sector, if it still exists in January? And the Europeans and Japanese responding in kind?
The guarantee also imports what was an international problem into the domestic economy. Now poorly-managed financial institutions can compete for money against well-managed and prudent competitors with the same government guarantee.
No one has produced any evidence that our banks have been in any way disadvantaged by their lack of a sovereign guarantee. Indeed all the evidence in the weekend press was that our banks are enjoying a rush of deposits both from local investors fleeing the equities market and international investors who recognise the strength of Australia’s banks. In fact, our banks are in such rude health they’re buying out competitors. So much for evidence-based policy.
The only positives in the protection are that it is limited to three years for deposits, and – blink and you’ll miss this in today’s press coverage — the banks will pay an “insurance premium” back to the government for the benefit of its protection. Although do you think banks won’t pass on that “insurance premium” to customers?
Malcolm Turnbull isn’t devoid of responsibility for this. He’s been calling for this since Friday. Turnbull is guilty of trying to have it both ways, because he has also been flagging concerns about consolidation of the financial sector and complaining about their failure to pass on rate cuts. You can’t whinge about overly-profitable banks buying out their competitors and claim that they need governmental protection at the same time — at least, not with any logical consistency.
But we appear to have long passed the point of either logic or consistency.
Oh and Turnbull reckons the crisis requires a delay in the emissions trading scheme.
Because we know that, in different circumstances — if, say, there’d been an economic superboom — the Liberals would have declared “you know, let’s seize the chance and really get moving on an ETS right now.”
Some industry sectors, in the first glimmerings of maturity in the climate change debate we’ve seen from them in a while, said any further delay in an ETS would make things ever worse for them.
Rudd probably had no choice politically but to guarantee deposits, and maybe no one did since that moment when whatever fools are in power in Dublin started this ball rolling. No one is going to blame him — indeed, there’ll be plenty who will applaud his leadership.
But that won’t change how bad this decision is. If we’re lucky, we’ll never see the guarantee needed, and there’ll be no flow-on effects into the world economy. But we haven’t had much luck in this crisis so far.