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February 20, 2009
The Liberals, as an opposition, have trouble selling their message above the cartoon level. Joe Hockey's core message during the meltdown of financial capitalism and global economic depression is that the Rudd Government is doing too much regulating! How that is squared with the hedge funds being outside the regulation of financial institutions is left unsaid.
The Liberals appear to be more adept at the ritual of factional stabbing. So John Howard comes to their rescue in his recent speech at the Menzies Research Centre. He argues that in 1980 our nation needed five great reforms. We needed to deregulate our financial system, fundamentally change our taxation system, make our labour markets freer, reduce excessively high tariffs and rid the government of ownership of commercial enterprises that would be better run privately. By 2007 these five great reforms had been achieved.
On the cause of the global financial crisis Howard says:
The subprime debacle originated in the United States, where the regulations about the making of loans were far too lax. It was a laudable social goal to spread home ownership as widely as possible, but the method involved the distortion of the financial system. Failures of regulation have contributed to the severe economic circumstances we now face. I do not seek to defend the excesses on Wall Street and elsewhere. However, these failures and the challenges we face do not represent a systemic failure of capitalism or indeed of the market system.
So there we have it. The collapse of Wall Street----Howard actually calls it a global financial meltdown--- is one of excess, and not the systematic failure of financial markets. The financial crisis was actually the result of distortions to the financial system by well-meaning but ill-advised government tampering with the financial system.
Moir
Howard, in short, attributes the blame for the financial crisis to government intervention. There is no need for a government bailout of Wall Street as the excess-- presumably, Greenspan's irrational exuberance --- has gone. As Howard puts it, the notion, gaining traction because of the world's financial turmoil, that in some way markets need extensive re-regulation, is based on a false reading of what has happened to the world economy in the past year.
Really? Why so? All we have from Howard is assertion, not argument about why it is a false interpretation. Why is government intervention the cause as opposed to the economy taking on so much debt that it will ultimately fall into a debt-induced crisis -- which is where we are now.
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Unfortunately it was not just the sup prime. the irrational use of the Futures Market as tradeable securities and various other paper or indexed based securities has led to absolute mayhem. The worst was the indiscriminate trading of the oil futures which led the world to an inflation number it could simply not cope with.
The Financial Services Reform Act in Australia has certainly seen greater controls imposed in Australia that has assisted us to be better placed than most markets of the world.
Regulation must come to Wall Street and as the oil market proved when OPEC called the dealers out by cutting production made a complete mockery of the commentators and dealers. USA and Europe must regulate their markets better and Futures Trading needs to be restricted by at some stage requiring dealers to take delivery of the "physical" not simply allowing them to manipulate a "safe" commodity.