Tuesday, October 28, 2008

Economist attacks Rudd's bank bailout

Right Correct-thinking economists should have a field day with Rudd's fiscal policy.

Economist Dr Jon Stanford points out the folly of Rudd's bank bailout.

The Commonwealth government's guarantee of bank deposits and bank debt has created serious problems in financial and banking markets. This reflects a lack of policy analysis in the preparation for the introduction of the guarantee. The announcement of the guarantee was a grandiose gesture which was far too much of a jump from the flawed suggestion of the Council of Financial Supervisors and from the realities of the situation.
Ahem. It reflects the ineptitude of the PM and his advisors.


Wand said...

My comment below on the Insider's thread provides an insight into what has been going on in government and is worth revisiting.

In the Senate Committee hearing, Barnaby Joyce to David Gruen from Treasury.

Joyce: "Did you do any modelling on the effect of that package?" (The $10.4 bn giveaway).

Gruen: "There was no formal modelling done." (Dragging out the words for as long as possible to make the answer seem like an answer).

Joyce; "We spend half of the nation's surplus without a formal modelling of the effects of the package? How long would it have taken?" (Dragging out the question for maximum possible effect).

So there we have it, a bunch of incompetents / amateurs.... confirmed by listening to Krudd earlier today with more on the bank guarantee. The Australian dollar has tanked even more but should we be surprised?

Since then the dollar has fallen further and this morning I see that Krudd is proposing guarantees for market linked investments if they apply for a banking licence.

Holy crap, here we go again! More meddling! So when is a market linked investment not a market linked investment? When it’s a bank. Now if it’s a bank, the rate of return on the investment is different from that of the market, which is why there are these other financial products available. Some people want to accept a greater risk with their investments to be able to earn a greater return. Why even some banks have specific products in their portfolios in this area too, e.g., the Colonial First State owned by the Commonwealth Bank.

The reality of what Krudd is proposing is a contraction of the range of financial products available in the market. If this occurs, as soon as this financial crisis is over, I would guess that the old market linked investment businesses (I mean the new banks) will see a flight of funds as money flows to financial institutions that can offer a better return on the investment in line with the market, i.e., those funds that survive without a banking licence.

I shudder to think what will happen next as Krudd attempts to fix problems of his own making. Jon Stanford is right. A wind back in the guarantee is an interesting idea and worth considering though whether it would achieve the desired effect is problematical considering the market has been well and truly unnerved by Krudd and his insane mob.

stackja1945 said...

Krudd thinks he is John Curtin. While
Eddie Ward gave a earlier Brisbane Line to distract people.

Anonymous said...

One almost wants to write a letter: Dear Mr Rudd,
Now is not the time for gesture politics.
In fact, there is never a time for gesture politics.
Grow up.
Yours sincerely,
One of your employers

saint D@B

bruce said...

Fully agree Wand, well said.

One quibble: not sure if fluctuations in our dollar reflect any informed reaction to Rudd or our local scene. More likely just blind reflex or backwash from big currency moves elsewhere, eg Europe pulling back from Asia.

Wand said...

Stop Press: Treasury modelling revealed.

From Update 2 at Bolta's blog