May 4, 2018

Banking crisis exposes our tendency to disequilibrium

Two major industries have demonstrated how our neoliberal policymaking process ends up producing a backlash that can damage the entire economy.

Bernard Keane — Politics editor

Bernard Keane

Politics editor

The last three weeks have crystalised a regulatory and accountability crisis for financial services: AMP lying to the regulator, that regulator admitting to enfeeblement, chairs and CEOs forced out, the CBA's culture damned by another regulator, its board and remuneration policies savaged, financial planning regulation exposed as a joke, speculation about the end of vertical integration. The dreaded phrase "burning platform" has been used about Australian banking.

For investors -- especially AMP investors, who've seen shares fall by around a fifth since the start of the year -- it's a deeply uncertain time. For citizens and consumers, it's frustrating that the loathing of the banks they've felt for so long has been justified. For politicians caught on the wrong side of the issue, it's required backflips, apologies, demands for corporate scalps and threats of further regulation. And for borrowers, it's likely to be the start of a period of significantly tighter lending standards that may well flow into the broader economy, which is heavily reliant on housing construction.

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26 thoughts on “Banking crisis exposes our tendency to disequilibrium

  1. swimming the Hellespont

    The odds on it being Aged care are shortening rapidly, the shysters and spivs are in it up to their necks:
    & the government couldn’t give a toss how it affects outcomes for residents:

  2. drsmithy

    And will politicians make the same mistake of allowing powerful corporations to get their way all the way to the crisis point when regulation-by-backlash sets in?

    Why persist with the delusion it is a “mistake” when the plain reality is that it is by design ?

    “Never waste a good crisis.”

  3. Terry Goulden

    Unfortunately the answer to the question in your last paragraph is yes. As communism worked very well on paper but not in the real world, free market forces do the same, that is, work well as a theory but fall down in practice. Maybe we could try the in between economic way, that is, a semi regulated economy. Australia used to be one when our Liberal Party actually was Liberal not neocon. Unfortunately I doubt if any of the current members of the liberal party or the corporate class would have the self interest to admit how much their economic ideology is just plain wrong.

    1. DF

      The semi-regulated economy run by Menzies seems to have served Australia pretty well – of course taxes were higher and the natural human tendency towards inequality was in check.

    2. Arky

      Spoeaking as a rusted-on lefty, I never got how communism worked very well on paper either. “From each according to his abilities, to each according to his needs” always seemed like a terrible idea on paper that shafted merit and gave no incentive to improve your abilities or decrease your needs.

  4. Ruv Draba

    I broadly agree, Bernard. In the face of large corporates who develop international expertise in bypassing regulation as a core business competence, a magical belief in the ethical oversight of market forces results in instability that leads to regulation by backlash, which tends to be tokenistic, oversimplified and then not monitored afterward — so you get all the fear and fire of public outrage, yet not all the benefits of diligent inquiry and continuous improvement.

    As to where next, I’d bet health insurance, then social networks, probably in that order, largely due to the cost of health insurance being felt more acutely than the loss of data privacy, and the effect of Baby Boomers ageing.

    Aged care has been problematic for two and a half decades that I know of. It’s not that the issues are less acute — only that it seems nobody wants to lift the bonnet and face both the reality and the inevitably divisive moral and economic discussion that will follow. I don’t know what might trigger the last — perhaps whatever happens when Boomers convert their reverse mortgages into Refundable Accommodation Deposits, only to discover that the choices they consigned Mom and Dad to aren’t actually acceptable for themselves, and there’s no framework to negotiate nor enforce quality of service.

    Good article. it’s nice to see you back in form again.

  5. klewso

    And let’s not forget the role of our alt-right media in laying down withering cover fire to justify ignoring calls for or forestalling such an inquiry – not least from Limited News and the Fin Rev – preferring to champion the powers of market forces. From whom subsequent mea culpas don’t go as far as countenancing the damage they did in helping to justify putting it off?
    How often can they be wrong before they’re dismissed from their positions of “expert” influence – how many of them saw the GFC coming?

    1. Dog's Breakfast

      Too right Klewso. I saw a headline today, while scrolling through junk media, about Rupert complaining about Google and Facebook’s ‘fake news’.
      He invented the thing, and has the hide to complain about others taking over HIS space. A remarkable turd.

      1. klewso

        The rest of our soft-centred media whine in chorus with the Limited News Party over the propagandising by the likes of GetUp! and Cambridge Analytic : but can’t see the similarities of their operations with Murdoch’s devotion to trying to sway opinion through that 70% of our hard copy “newsmedia”, plus FUX/Sky News that he runs like some Ministry of Misinformation and Obfuscation, and the way he meddles in other media (feeding shock-jocks and the like).
        When that same Murdoch m.o. gave the world “It’s The Sun Wot Won It”?

        [And it’s all good Limited News re Adani and coal : while Rupert sits on the advisory board of Genie Oil and Gas, along with the likes of Dick Cheney?]

    2. PaulM

      Did you notice the AFR’s front page state of high dudgeon today about the Chair of an industry super fund being forced to resign because of some malfeasance in his day job as a union official. Where are the bank and insurance executives and board members being shown the door? Where are the AFR’s calls for such heads to roll. The executives’ club, and its media boosters, are still alive and well.

  6. Itsarort

    Yes, publically the Gov have pulled back from their customary, slavish sycophancy towards the big banks. However, it’s a shame the same can’t be said of the Fin.

  7. AR

    Will BigBi$ take the Peter ‘beaming bullshit’ Beatie option to deal with this utter failure?
    Hey, got it wrong, let’s move on.

  8. [email protected]

    The continuation of these financial services all depend on the May Budget, so just how can any good journalist say anything good about the May Budget next Tuesday night when the Budget is handed down. All the services that Bernard Keane has mentioned here hinge on the May Budget as the Budget finances the nation going forward from May 8.
    The crumbling of all financial services will be a drag on the Budget in physical terms and in psychological terms. What we want to know after next Tuesday is just how will the public trust or not trust the Four Big Banks orwill the mistrust just be with the Commonwealth Bank. Remember the Turnbull Government trusted the Banks with our money and did not want a Royal Commission.
    What sort of backlash is going to lash our backs and banks

  9. gjb

    We live in a greed driven market economy, the backlash is well over due. It’s the finance sectors turn to suffer, just as they made their customers suffer.
    As for Penalties perhaps direct redress 1) a increased interest paid to customers accounts with less than $100k
    2) a reduction in credit card interest rates
    3) boost APRA funding as a ongoing % of bank profit.

  10. Dog's Breakfast

    “Both instances demonstrate a key feature of neoliberal policymaking”

    You were so close Bernard.

    It should have read; “Both instances demonstrate a key feature of capitalism, in all its forms”. Booms and busts, market rip-offs, consumers gouged, the biggest players smashing the smaller and more agile companies in the same space. This the DESIGN of capitalism, not a flaw.

    It must be junked, with only snippets of the best aspects of market theory allowed through. It is a perilously stupid way of organising ourselves, just as communism is. Flawed and stupid.

    Crazy idea, how about we built an economy around fundamental principles and understanding from behavioural economics and psychology, actual knowledge of what makes us tick as human beings and what makes us most productive and happy. Those answers are out there, and the current system is inhumane, unequal, distorted, inefficient and leads exactly where it is pointed. Quelle surprise.

    1. RoRo

      Yep. Capitalism is a system based on making profit. From the first to the last day in my commerce degree, the same mantra was reiterated: firms exist to make profit. Pretty simple. It is not surprising that all of these industries have gone in the direction they have due to their profit motive. It’s actually really not complicated, and no regulation is going to restrain the ultimate reality that our system is prone to chaos by its nature. When your main aim is profits, it makes sense to act as the banks and energy companies have.

    2. covenanter

      Some say that a certain moral philosopher from the Age of Enlightenment wrote a famous book which was based upon those fundamental principles and understandings mentioned in your last paragraph.
      That body of work was a general study, naturally enough when his objective was that all the people in “commercial society” might understand it and better it.
      Those who came after took that body, and cut it up into tiny pieces of specialised understanding, for example, constructing a religious-like reliquary box containing the thumb of “the invisible hand of the market”.
      Colonising, in effect,a newly discovered a broad continent of understanding, planting their flags and throwing up walls to exclude others from their plundered resources?
      George Bernard Shaw, surveying this century long process, was able to write that “the specialist is, in the truest sense, an idiot”.
      The truest sense of the word idiot referring to those merchants in Ancient Athens who were unable to take their responsible part in the democratic decision making in the agora because they preferred instead to remain oblivious, in their shops.
      So back to that original , general view of economics and ignore the last two centuries of idiot economic specialists and their moronic behaviour? Go for a better, more general understanding, as you suggest?

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