Here's John Quiggin:
Terry McCrann has responded to the call for a new inquiry into the financial system with a snark-filled piece which is of sociological, if not intellectual, interest. Let’s jump to his last para.
What next then? Setting up a government-owned home-buying service at the Post Office? Presumably two others among the ’six-pac’, Nicholas Gruen and John Quiggin, would love that, provided it directed the trusting unsophisticated only into carbon neutral homes.
The most charitable interpretation of McCrann’s reference to carbon-neutral homes is that he is indicating a tribal affiliation. He knows that the typical reader of the Herald-Sun business pages has delusional beliefs about climate change, and is assuring his readers that he shares these beliefs. This alone would be enough reason to dismiss the rest of the column. If McCrann is prepared to dismiss a vast amount of scientific evidence on a topic on which he has no particular expertise, simply because members of his social group don’t like the conclusions, his judgements are worthless. In the absence of any new factual evidence (and, all the facts mentioned in his column are well-known), his arguments have no evidentiary weight. In essence, they amount to the statement “if you’re on my team, you shouldn’t agree with these guys, because they are on the other team”
But that, as I observed, is the charitable interpretation...
The less charitable view is that McCrann rejects climate science because his world view is incompatible with the existence of the atmosphere, or any kind of global public good. There’s plenty of evidence for this interpretation in his column. On McCrann’s apparent view, the fact that Australia is not in a deep recession proves that there is, and can be, no such thing as a global recession. Since we haven’t been affected, there’s no need to worry. To quote his column
For their call for a massive, Campbell-and-Wallis type inquiry into the financial system actually lacks ‘a problem’ that has been exposed and thereby needs fixing. … global financial crisis. Not many dead or even injured in Australia. From any systemic fault, that’s to say.There is a real problem here. McCrann is significantly less ignorant and wilfully stupid than the average defender of economic liberalism in Australia (compare for example, Andrew Bolt or the Institute of Public Affairs). But he can’t allow himself to be much smarter than his readers, and stupidity and ignorance (whether endowed by nature or acquired by effort) are essential if you are to be a full member of the tribe. In a period when social democracy is on the rise, we need better opponents than this.
Here's McCrann's column:
ONE Stephen King writes silly fantasy and horror fiction – the other Stephen King writes international best-selling blockbusters.
The so-called 'people's bank' proposed by the first King, the dean of economics and business at Monash University and five fellow 'influential' -- they wish! -- economists, is an idea whose time has definitely come.
In 1911. When King O'Malley founded the Commonwealth Bank.
And then gone. In 1990 when one of his political heirs and successors, Paul Keating started its privatisation. Thereby posing the question: which bank is now just another bank?
A sale, it might be noted, which not exactly incidentally, coincided with the bankruptcies and forced sale of the other three 'people's banks' -- the State Banks of Victoria, Western Australia and South Australia.
There are two insurmountable functional problems with the concept of such a bank -- which were exposed so graphically in the 1980s and Keating understood only too well.
Plus the huge all-encompassing holistic one -- "I'm from the government and am here to help you."
Oh yeah, sure. Only a particular type of economist could still believe that.
Only an even narrower group, well represented by this 'six-pac' would have sufficient intellectual arrogance to believe they could design the right can-opener. The one to open the can (of worms?) in which such a bank would be found.
The first functional problem is such a bank's core ethos.
Is it designed to be commercial? If so, what's the point, if it's just another bank doing exactly what the other banks are doing? Which means paying market rates of interest on deposits, charging market rates to borrowers.
Which is exactly where the Commonwealth Bank was in 1990. But doing things sub-optimally because of legacy restraints and the fact that it was still 'from the government'.
Even accepting the 1980s disasters that also had been created in the private banks, Keating knew that unless it was sold, in the long run it would wither and die in public ownership.
Which also buries the idea that such an institution can 'keep the bastards honest.' It didn't work in 1990 and it won't in 2020. Because the market essentially does, even though 98 per cent of you won't believe it.
The alternative -- then and now -- is to make such a 'people's bank' operate with government subsidies in order to subsidise some or all of its customers in some way.
That is the path to all sorts of disasters, as we saw in those earlier 'people's banks'. It's moral and actual financial hazard on a grand scale.
You make it 'uncommercial', you introduce serious distortions in the market, which at best damage activity and, at worst, end in disaster.
Have any of the 'six-pac' heard of Freddie and Fannie? In their different way, intended to achieve precisely what this bank would try. On both the deposit and lending sides.
As the Bankers Association was quick to point out yesterday -- true, partly speaking its book -- the first victims of such a bank would be all the small banks and building societies and credit unions. Thereby actually strengthening the Big Four.
In simple terms whether or not it had actual subsidised rates, a government-owned bank would have an overwhelming competitive advantage against small financial institutions -- which presumably will have lost their government guarantee.
An advantage, especially in the wake of the very financial crisis, the very consequences of which, the 'six-pac' letter is purportedly designed to address.
Well, it'll just be a 'post-bank' - taking deposits and making plain vanilla housing loans.
Easier said than done. You have to set up an infrastructure, you have to build staff.
Or does the 'six-pac' envisage it operating like another service in the Post Office. I'll have a book of 55c stamps and a $350,000 housing loan, thank you.
Their bigger point is even sillier, but also provides us with a possible pathway to what's it all about Alfie? Actually, Christopher -- one of the six, Christopher Joye, who seems to have a thing about securitisation.
For their call for a massive, Campbell-and-Wallis type inquiry into the financial system actually lacks 'a problem' that has been exposed and thereby needs fixing.
Both in the big -- global financial crisis. Not many dead or even injured in Australia. From any systemic fault, that's to say.
And in the small -- yes, the securitisation which funded the alternative lenders has disappeared. But not because of anything that happened here. And actually, good riddance.
Is there any evidence that home buyers are having trouble getting finance? And on very attractive terms, with the basic mortgage rate just 2.8 percentage points above the Reserve Bank's cash rate.
Joye and fellow letter-writer, the Melbourne Business School's Sam Wylie, seem besotted by the securitisation dynamic which proved such a moral and financial disaster in the US.
Wylie wrote a very silly article, attacking variable rate housing loans. When the evidence demonstrates we have been extremely well served by the system of banks taking variable term deposits and lending mostly medium-term at variable rates.
It's proved best for borrowers. Official rates have been cut by about the same in the US and here. But while our borrowers have seen their rates drop by nearly 400 points, in the US the average borrower has been lucky to get 100 points.
And thereby also most effective for monetary policy. The RBA cuts (or hikes) and it actually feeds into market rates. In the US, the impact is muted.
In their grab-bag of 'ideas' the 'six-pac' did highlight some big and important issues, like our foreign debt and unsophisticated investors getting access to trustworthy investment.
But it was ever-thus and can be addressed or looked at individually on their merits.
It is not a sensible basis for a massive inquiry into 'the financial system'. Far less, for starting down the path to ever-broadening government delivery of financial 'services' to the unsophisticated.
What next then? Setting up a government-owned home-buying service at the Post Office? Presumably two others among the 'six-pac', Nicholas Gruen and John Quiggin, would love that, provided it directed the trusting unsophisticated only into carbon neutral homes.
Graphic: Peirce clipart