Thursday, October 23, 2008

The goverment is helping, H-E-L-P-I-N-G

Get it?

The Government may be on the ropes over its decision to guarantee bank deposits, but the Opposition is going over the top.

How’s this for an overegged claim?

“The government’s own actions have caused greater instability in the Australian financial markets than any event that has occurred overseas”.

That’s from the Opposition Treasury Spokesman Julie Bishop.

What about this from the Opposition Leader Malcolm Turnbull?

“We have seen institutions not covered by the deposit guarantee losing money, we have seen funds putting a stop on redemptions, we have seen savings frozen.”

We have indeed seen those things. Perpetual, AXA and Australian Unity each put some sort of freeze on their redemptions late yesterday.

But it’s a stretch to say they did it primarily because the government guaranteed bank deposits...

Bank deposits have always been implicitly guaranteed by the government. They have always been regarded as safer than the funds run by the likes of Perpetual, AXA and Australian Unity.

Money was always going to be moved out of the Perpetuals and into the banks as soon as global financial troubles turned into a global financial crisis.

Explicitly guaranteeing bank deposits (and also deposits in building societies and credit unions) doubtless accelerated the trend. The Reserve Bank and the Prudential Regulation Authority have said so.

But it didn’t cause it. We would have had instability, a run on funds, and funds frozen without it.


Anonymous said...

Peter, you appear to be engaging in assertion and polemics.

Edumacate me: why is it "a stretch to say they did it primarily because the government guaranteed bank deposits"? What was the primary reason (if not a run on funds moving to government backed institutions)?

Peter said...

The primary reason was that the funds weren't looking too safe (they are market-linked).

People withdrew their money and put it in the bank.

They were doing this well before the government announced its guarantee.

The Weatherman said...

Peter - surely you jest - the funds are now competing with banks, building societies and credit unions that are suddenly gilt-edged, and it's the funds' fault that they're losing out?

Marek said...

I was just about to say that it was a matter of time, in fact i told my parents to pull money from such a fund a little bit back because i considered the chance of them freezing withdraws as high.

Peter said...

Dear Weatherman,

It's surely not quite right to say that banks are "suddenly" guilt edged.

They've always been regarded that way - certainly in my lifetime, which now spans half a century.

Building societies and credit unions on the other hand were certainly not regarded as guilt edged - until October 12.

The Weatherman said...

Guilt edged? I'll say they are!

I know that seizing on spelling errors in these forums is poor form, but the almost Freudian nature of your slip can't pass without comment!

Peter said...

I'm no fan of the banks, but I don't think they should feel guilty about getting their deposits guaranteed.

Anonymous said...

The opposition is engaging in a disgraceful campaign to undermine the efforts of the government to install confidence in the financial system. They should be ashamed of themselves for trying to promote fear for political gain instead of telling it like it is and working to improve the current situation.


Marek said...

Malcolm is all over the place first he welcomed the Government's decision to guarantee all deposits and now he says the Government "shouldn't have offered … an unlimited deposit guarantee".

Can't make his mind up can he?

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