Apr 19, 2018

The royal commission isn’t exposing flaws in the system — this IS the system

The revelations of the banking royal commission reflect deeper issues about policymaking in Australia than just the structure of the finance industry.

Bernard Keane — Politics editor

Bernard Keane

Politics editor

As the royal commission smashed the reputations of major financial institutions this week, there was understandable focus on the individuals involved and the inherently flawed structure of vertically integrated wealth management. "Fee for no service" -- the charging of customers for services banks and AMP had no intention of ever providing -- is only the most recent of a long list of consequences of the major institutions' involvement in financial planning and wealth management. But understanding AMP and the Commonwealth Bank's systematic ripping off of customers and their equally systematic role in trying to hide it from the regulator, as purely the result of individual venality and a corporate structure that incentivised it, can mislead.

I'm a bit like a broken record on this, but it's crucial to understand the sort of outcomes exposed by the royal commission as the result of an entire policy system, otherwise any response risks treating the symptoms rather than the cause. As anyone with a rash will tell you, treating symptoms is quite important, but they'll simply recur without seeing the underlying causes.

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39 thoughts on “The royal commission isn’t exposing flaws in the system — this IS the system

  1. RL

    More crap governance from a so called government.
    The LNP had to be dragged to kicking and screaming to the RC and now our intelligence is further being insulted by the line from Morrisson, O’Dwyer and the rest of their mendacious mob when asked why they said was it not necessary to have a RC, ignore that and parrot more cant; we are having a “much better RC than the one Labor” because we have expanded it to include super funds; read, particularly industry funds.
    As far as I’m aware, the industry run funds are the best performing of all and there was no need for them to be included.
    What that’s really about is so the very mob being investigated by the RC enabled by the government to get their grubby hands on these well managed goldmines and to try and damage trade unions.

    1. Robert Smith

      Don’t be too quick to let industry super funds off the hook. With such a big pot of money in these funds it is likely the RC will turn up something rotten somewhere.

      1. Reckons

        and I’m sure that’ll be timed perfectly for an early election later this year.

      2. Zeke

        Yes, I’m sure some official in one of the Industry Superannuation companies cheated on their travel costs… leading to the government handing over OUR super to the big banks to pluder.

  2. graybul

    The Australian Banking/Finance industry and it’s political, corporate backers stand stark naked before the Royal Commission Inquiry. Despite LNP internalised reluctance to allow an Inquiry, now even Treasurer Morrison has called for blood. Sure, government has inserted a get out of jail free clause severely limiting time allowed for the Commissioner to expose extent of corruption; but boy, has he got off to a cracker of a start. The business models of CBA and AMP are indefensible. Their corralling of clients springs to mind every time TV replays those atrocious videos of dying sheep ‘compressed’ one on top of other on airless ship decks?

    1. graybul

      Crikey is a recognised social media site . . . maybe a powerful social media public voice? Current exposures by Royal Commission Inquiry into Financial Services industry reaches into all sectors of government and community and irrefutably links corporate despicable misbehaviour at best, with Regulatory Authority failures.

      The Australian Liberal National Party (LNP), over the past two years blocked, obfuscated and deflected intense public pressure for a Royal Commission Inquiry into Banks and Financial Services industries. Following the RC’s shattering exposures now, like dominoes, LNP Ministers public mea culpa’s evidence their previous culpability. We, the Australian electorate are also shattered. Governance, and Corporate accountability exposed. Corruption endemic.

      The public voice must be heard. Social Media is a flawed tool; but it is virtually the only tool now available to a public voice. This member of the public demands the PM attend the Governor General; and request a General Election be called within six months.

      1. bref

        Well I doubt there’s going to be an GE any time soon, because after the corporate tax cuts in July the Libs know they would lose it. 18 months will buy them some time before they lose, unless Labor totally drops the ball which I don’t rule out.

        1. graybul

          Not the point Bref. The public voice, speaking as one, taking to ourselves the right to speak out . . . require PM to present his government before, and accountable to the people. All it takes is one more voice . . .

          1. bref

            As I say to my friends constantly, ‘OK I agree with you, I’ll sign the petition, but you know it won’t make any difference!’ And it seldom does.

  3. BeenAround

    Bullseye Bernard. Policy has not only been woeful, it has been for decades complicit with business and particularly the financial sector. In fact, the bilateral 4 Pillars policy is one of the most corrosive detriments to our democracy. When did you last hear any bank publicly lobbying government? Never! Because banks do not have to transparently argue financial industry policy in public. Banks have so much power, they simply, and privately, go to Canberra and threaten the Treasurer with ‘economic mayhem’ as retaliation for any policy that threatens the torrent of bank profits. And we, the voters, never hear about that. Disappointingly, it seems the majority of voters subscribe to a delusion that their individual interests are aligned with the interests of big business. That was amply demonstrated by the Mining Resource Rent Tax debacle that Labor facilitated. Now this Royal Commission is laying bare the soft touch both parties apply to policy on any business activity as a policy disaster. And remember, 6 months ago that Libs were vociferously arguing that a Royal Commission was not necessary. It could turn out to be the most effective Royal Commission ever convened in this country. At least the delusion of alignment of interests will not be sustainable after all the evidence is in. But the policy wreck will be repaired only if politicians suddenly wake up to the fact that corporations do not vote for them and consultation with business on social regulation of business is directly contrary to the real interests on their constituents; ie us.

    1. rhwombat

      Well said. There is an election coming.

  4. zut alors

    The headline tells the story perfectly.

    We’re not hearing anything about the effect on these corporations’ shareholders – aside from the drop in ASX prices. Are shareholders angry? Do they feel ashamed to be benefiting via dividends from these crooked institutions? Regulations have been violated for greed, profit – are shareholders unwittingly engaging in proceeds of crime?

    1. Damien

      Australia itself is “benefiting” from the proceeds of this crime.
      Our “recession free” economy has been artificially pumped up by financialised garbage sold to “muppets” for decades.

      Commonly known as the “wealth effect”, this can be tracked by the massively growing pile of consumer debt (the source of our so-called “economic growth”). Somehow this keeps growing even as wages fall! It’s like the laws of mathematics never applied!

      All it takes is for someone to point out the emperor has no clothes and our economy will soon go the way of our waste recycling industry.

      1. Peter Schulz

        Unfortunately, Damien, you are spot-on. Steve Keen, one of the few economists who predicted the GFC, lumps Australia into his category of ‘zombie economies’ because we are sleep-walking into an unavoidable recession. When Hawke and Keating came under the spell of neoliberalism and deregulated the finance industry, they unleashed the stimulative power of debt. While the growth in (private) debt exceeds the growth in GDP (as it did exceptionally well under Howard) the economy booms. But as with all stimulants, the high can’t go on forever. And the minute you start to ease off on the debt binge so that debt grows more slowly than the GDP (even if debt is still growing in absolute terms), the economy will slip into recession. But the zombies keep marching on regardless.

        1. Dog's Breakfast

          You’re right Peter, with the caveat that Steve Keen predicted 7 of the last 2 GFC’s.

          However the underlying principles that Keen and many others pointed out still apply. An economy that grows on debt has to come a cropper at some stage. It’s actually simple mathematics. This ramped up under Howard and he encouraged it. This is where we are.

  5. Desmond Graham

    Now should line up another Royal Commission on large shopping centre leases where there is the same principle’s in play as in banking large retailers get easy terms and the smaller the retailer worse the terms- and government instrumentalities as well as public companies are involved such as QIC.

  6. Damien

    Good points Bernard. Look forward to another article explaining why the exact same reasoning isn’t applicable to the gambling industry, the food industry or the building industry?

  7. Bob Hatton

    The whole raison d’etre of the Turnbull LNP is to transfer the wealth of the nation to the top 1%.
    Finding a few crooked bankers will not put a stop to that

  8. RoRo

    A couple of points:
    1. “For these companies, competition — the idea of letting their own products compete fairly on performance with rival products, and allowing independent financial planners to decide which were best for clients — was anathema; they wanted to control the whole process.”
    You’re half right, but it’s important to also make the point that “letting [bank financial product] compete fairly on performance…” is a myth in financial services. Demand-side competition in financial services generally just does not work. While most of us (consumers) need simple, low-cost banking and financial products, the static of marketing, proliferation of complicated products for basic things (like savings accounts and credit cards, e.g.) and our inertia in whatever existing product we have means that consumers effecting demand side pressure on poor-performing products doesn’t work in financial services.

    2. Re: independent reports
    The AMP example isn’t actually the best example of dodgy independent reports. AMP gave evidence to the RC that the AMP board went back and forth with Clutz about the content of the “independent” report. Sounds pretty obviously not independent despite the name.
    A better example was the Deloitte “independent” report into CommInsure that found no evidence of wrongdoing…despite not actually having interviewed any customers.

  9. bref

    Thanks again BK for succinctly putting together the issues we’ve known and/or suspected all these years. Don’t you love ScoMo’s raised eyebrows and ‘if only we’d known it was this bad!’ attitude. What a douche…

    1. zut alors

      It begs the question could the Coalition possibly be wrong about any other things they vehemently defend?
      For example: Murray-Darling Basin Plan, emissions goal, withdrawal of renewable energy subsidies, Centrelink crackdown, coal mining, Trans-Pacific Trade deal, live animal exports etc…you get the general gist of it.

      1. bref

        Oh no, Zut. That would mean we’re totally screwed! Oh wait.

  10. Peter Adams

    Alongside these revelations must surely be the complicity of those elected members of Parliament whose behaviour shielded and enabled the banks to behave in the way they did. MP’s who voted to gut ASIC, to water down FoFA reforms, or otherwise opposed the formation of the Royal Commission need to held equally accountable for acting against the best interests of the Australian people. Name them… and demand they explain themselves!

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