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"...public opinion deserves to be respected as well as despised" G.W.F. Hegel, 'Philosophy of Right'

it's just a matter of excess « Previous | |Next »
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.

MoirHockey.jpg 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.

| Posted by Gary Sauer-Thompson at 5:49 AM | | Comments (6)


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.

As always, Howard prefers his common sense pub test to anything as tedious as argument involving evidence and analysis.

Even if it were true that the global crisis was caused by too many loans to poor folk in the USA - which is patent nonsense to anyone who hasn't put their fingers in their ears and decided not to hear anything that might upset their preconceived beliefs - what an indictment that would be of global capitalism! A few politicians and bankers in America show bad judgement and KAPOW!!! The whole world system falls in a heap. I mean who could seriously argue that's a good arrangement?

Howard calls it "waxing philosophical"

Howard never seemed to understand the dangers of a boom based on Quarrying Australia---it was an export reliant economy that depended in big economic growth in Japan and China to drive the demand for coal and iron ore. When the exports of China and Japan tanked because the US economy nosedived the writing was on the wall for Australia.

He seemed to think that the boom would go on forever because of the government's commitment of the free market. Market dreaming--along with most of the economic commentators who reckoned there would be no fallout in Australia from the subprime crisis in the US, and that Australia's economic prospects were blue sky.

Well the bottom has fallen out. The boom in Queensland has gone bust and Howard's two tiered economy (resource rich states versus non-resource states) is no more.

Howard had no idea that a near bankrupt America would go to China for help to forestall systematic failure of the global economy---- co-ordinated action to save America from bankruptcy. It has to be coordinated action because China is America's biggest creditor as it holds $US700 billion in Treasury securities, and the price tag for Obama's stimulius package is getting on for $US 2 trillion.

Howard lived inside a bubble. He could not see the broken dreams on Main Street from the millions of home foreclosures in the US. Neither can Hockey. He cannot comprehend the significance of Obama's salvage operation.

Even Alan Greenspan is calling for the nationalisation of some of the US banks to facilitate a swift and orderly restructuring.

the market dreamers live on in Perth, the city of prosperity. This is the space where the corporate elite reckoned the "boom" would last 50 years or more, the words 'boom' and 'bust' have been banished, and the global economic meltdown is a hiccup and minor correction.