Quick — Ruddbank — good or bad?
Well, strictly speaking there is no Ruddbank; in fact, there’s no bank at all. The Australian Business Investment Partnership is merely a vehicle to combine Government and major bank funding to replace retreating foreign capital in commercial property projects.
Still — good or bad? Are we signing taxpayers up to bail out shonky developers and gouging banks, or ensuring the timidity of foreign banks doesn’t cause a vicious cycle of asset sales and propery devaluations?
Don’t ask economists or commentators. They’re as confused as the rest of us.
Nothing better illustrates where we are — or how we don’t know where we are — in economic policy terms than the reaction to the Government’s move to cover the possible retreat of foreign capital via a joint Government-bank investment vehicle.
The Australian has been running a campaign against it as well, getting housing finance guru Christopher Joye to have a go at it today, after right-wing economist Henry Ergas slated it on Tuesday. Despite the blatantly partisan nature of his columns, neither Ergas nor The Oz feel inclined to reveal that Ergas has been in the pay of the Federal Liberal Party, conducting Malcolm Turnbull’s own version of the Henry tax review.
Today The Oz also gets Ergas to explain how the Partnership may breach competition law.
Dead set, Henry? Really?
To borrow Michael Herr’s classic line from Apocalypse Now, charging someone with breaching competition law during a financial meltdown is like handing out speeding tickets at the Indy 500. Everything about the response of governments to the financial crisis has been anti-competitive. After forced mergers, large banks being allowed to consume smaller competitors and financial stability packages, it’s a little bit late to start pointing out that none of this is particularly pro-competitive.
Other commentators are rather more warmly-disposed toward it. Ian Harper backed the Partnership. The AFR’s Andrew Cornell called it “a prudent precaution.” Actually, therein lies the difficulty. Ruddbank is a pre-emptive move. Like most pre-emptive moves, if it works you’ll never be quite certain whether it was needed. Debate is focussed around whether what is being pre-empted deserves pre-emption.
Joye’s argument, to grotesquely simplify it, is that there is no threat to the housing property market from the commercial property market. Turnbull’s argument is somewhat blunter: who cares if the property market tanks — let developers and the big banks cope without taxpayer assistance. Similar arguments were advanced about the Wall St bail-out last year, you might recall.
Joye’s point is tempting, but after six months of discovering that things are far more interconnected than we’d thought, it’d be a hell of gamble to assume commercial property and residential property aren’t connected, particularly when there are plenty of economists eager to claim both markets are way over-valued and headed for big falls. It also doesn’t seem like the best time for Australian banks to get caught up in a round of major asset devaluations, regardless of the ethical or economic merits of doing so.
The lack of consensus reflects the fact that we seem to have become unmoored from economic orthodoxy. At the moment, any direction looks better than the one we’re going in.
The biggest issue in the global economy currently is how to fix up the financial system. In predicting worldwide gloom and doom overnight, the IMF emphasised that the first order or business was coordinated action to address the presence of bad assets on bank balance sheets in order to get credit flowing again. Any stimulus packages introduced before the financial system is fixed will only be relieving the symptoms of a more serious illness.
The debate about “balance sheet cleansing” swings between nationalisation, bad asset banks and zombie banks. And judging by the speed of the financial crisis, these are likely to be new-style zombies that sprint, rather than the old-school lumbering ones.
Australia doesn’t have this financial system malaise, but we’re in much the same boat as everyone else until the problem is fixed — unless we suddenly find a spare coupla hundred billion dollars to meet our investment needs for the next few years. David Bassanese in the AFR on Tuesday suggested that the Ruddbank idea might be an idea considered elsewhere — not so much to cure the infection of overvalued assets but as a vehicle for governments to unfreeze credit markets, in preference to wholesale nationalisation.
I referred previously to this sort of joint Government-private sector model as possibly giving us the worst of both worlds; the flipside of that is that, in combining the Government’s sovereign guarantee with private sector focus on profitability, such vehicles might indeed be the best way to get capital flowing again.
Seems like the economists have adopted that Chinese curse about living in interesting times.