Saturday, September 12, 2009

Godwin Grech has a different take on the panic that erupted one year ago this month

His words to the Auditor General:

"When I returned to Treasury in September 2008, just as the Global Financial Crisis got into full swing, it soon became clear that Treasury officers were being asked to prepare policy option papers on highly complex and economically significant issues at a speed that was, in my view, dangerous.

Policy papers would be commissioned in the morning, usually after a meeting or discussion between the Prime Minister, Treasurer, Dr Henry and a few others, and would then be considered by much the same group either later that day or the following day, with decisions often being taken on measures involving billions in actual expenditure or in contingent liabilities.

There was little, if any testing of alternative options, with often only rubbery estimates or forecasts prepared to support possible approaches.

The normal policy development disciplines had broken down, with many policy options, certainly those that I had exposure to, being developed without any real opportunity by the Department of Finance and Deregulation to undertake proper costings, if at all. Relevant portfolio departments were either not involved in the policy development process or were given very limited information or opportunity to contribute...

The OzCar SPV was developed in this environment. As I was very
uncomfortable preparing policy papers which contained options that had not
been properly costed and which I could not be sure would even be viable, I
began to rely on a small network of 2 or 3 highly experienced former Treasury
officers who I had known for the best part of 20 years and who had genuine
policy expertise in the areas that I lacked. This was especially in costings and
fiscal implications of options, as well as to the political viability of possible

I saw little point in putting up a policy option to the Prime Minister and the
Treasurer if it could not ‘fly’ politically – even if the numbers seemed broadly
accurate. I would therefore ‘roadtest’ a few ideas and options with my small
trusted network so that the risks of developing half baked policy options
involving contingent liabilities of $2 billion or more was reduced.

Although this may not have been consistent with normal practice, the
operating environment was hardly normal. It was in many respects chaotic
and dysfunctional and suffering from the stress of overload.

Risks were being taken that would never need to be contemplated in a normal
working environment that was adequately resourced with sensible deadlines
and expectations."