Should we occupy Martin Place?

Last week, Paul Krugman wrote the following on the growing protest, Occupy Wall Street:

There’s something happening here. What it is ain’t exactly clear, but we may, at long last, be seeing the rise of a popular movement that, unlike the Tea Party, is angry at the right people.

When the Occupy Wall Street protests began three weeks ago, most news organisations were derisive if they deigned to mention the events at all. For example, nine days into the protests, National Public Radio had provided no coverage whatsoever.

It is, therefore, a testament to the passion of those involved that the protests not only continued but grew – eventually becoming too big to ignore. With unions and a growing number of Democrats now expressing at least qualified support for the protesters, Occupy Wall Street is starting to look like an important event that might even be seen as a turning point.

“Occupy Wall Street is starting to look like an important event that might even be seen as a turning point.”

What can we say about the protests? First things first – the protesters’ indictment of Wall Street as a destructive force, economically and politically, is completely right.

A weary cynicism, a belief that justice will never get served, has taken over much of our political debate. In the process, it has been easy to forget just how outrageous the story of our economic woes really is. So, in case you’ve forgotten, it was a play in three acts.

In the first act, bankers took advantage of deregulation to run wild, inflating huge bubbles through reckless lending. In the second act, the bubbles burst – but bankers were bailed out by taxpayers, with remarkably few strings attached, even as ordinary workers continued to suffer the consequences of the bankers’ sins. And, in the third act, bankers showed their gratitude by turning on the people who had saved them, throwing their support behind politicians who promised to keep their taxes low and dismantle the mild regulations erected in the aftermath of the crisis.

Many Australians will feel a degree of support for the protesters. From a distance, our American cousins have quite obviously been put to the sword by Wall Street. And the failure of the Bush and Obama administrations to bring justice to the American people in the wake of the Wall Street debacle that culminated in the GFC must be quite a burden for the nation.

Such a sense of sympathy will probably be born, too, out of a feeling of righteousness. After all, as Australians we know that better outcomes are possible. We had our Wall Street moment in the collapse of HIH, didn’t we? It was prosecuted. The perpetrators were convicted and punished. The lessons were learned by regulators and our system corrected. Thus we prospered in the GFC.

It’s true. Sort of.

In its annual report on the Australian economy last week, the IMF revisited the topic of financial stability:

32. Banks were resilient to the global crisis, mainly because of sound regulation and supervision. Prudential rules, often tighter than the minimum international standards, such as higher loss-given-default assumptions, together with a pro-active approach to supervision, helped maintain a healthy and stable financial sector. Moreover, the Council of Financial Regulators played a key role in coordinating the response to the global crisis. Staff welcomed the government’s confirmation that the Financial Claims Scheme will be a permanent feature of the financial system. The scheme currently guarantees deposits with banks and other deposit-taking institutions of up to $A 1 million. The cap is being reduced to $A 250,000 in February 2012, but will still cover around 99 percent of deposit accounts in full…Banks have remained sound.

Fair enough. I agree, especially with the effectiveness of the crisis response. But the IMF didn’t stop there. It also provided the following kicker:

43. While financial institutions (mainly banks) have reduced their external borrowing, disruptions in global capital markets could still put pressure on their funding. Financial institutions external borrowing has fallen from a peak of 70 percent of GDP in 2008, to less than 60 percent of GDPin mid-2011 (Tables 6 and 7). Short-term debt (mostly issued by banks) has also declined, but remains sizable at 42 percent of GDP (on a residual maturity basis). Funding from European banks was just over US$300 billion at end 2010, about ¼ of gross external debt. If offshore funding markets were disrupted, the cost of bank funding would likely rise.

In other words, Australian banks remain vulnerable in the event of another rise in the price of global funding. Kudos to the IMF for pointing out the obvious, that the Australian banks remain unsound. Of course, as we know, it doesn’t matter because if the banks do find themselves unable to roll over their debts, the Australian government can step in and guarantee the debt. The ratings agencies now openly declare that the implied guarantee lifts bank ratings by two notches.

So, no worries, and certainly nothing like the US failure, because we haven’t had any bust. But is that the point? Is that really what underpins the Occupy Wall Street protests? I don’t think so.

Certainly, having your life ruined by some greedy banker is the spur to action. But it’s not the cause. The cause is the outrage at a plutocracy that changes the rules to suit itself.

And here we do find parallels with the US. The diplomatic function of the IMF may prevent it from calling a spade a spade – that management of liabilities by banks and supervision of such by regulators has been a failure in Australia. But, make no mistake, it was a failure. After all, one can’t ignore the responsibility to manage a full half of bank balance sheets, can one? If you can’t pay your debts because nobody will lend you more money at an affordable price, well, you’re a bankrupt aren’t you?

Yet, for three years, the politico-housing complex (our own plutocracy) has indefatigably changed the rules to defend itself. The banks that chose to borrow too much money in wholesale markets are seen as victims of unforeseeable outcomes like international bank freezes, government guarantees and other’s complex derivatives. But they borrowed the money using their own brand of currency and interest rate derivatives. Too much of it. And in private business, that’s all that matters.

Regulators tell us what a great job they did and how nobody saw any of it coming. But, isn’t that the point of regulation? To ensure that the exuberance of banks never overwhelms unforeseen outcomes?

I don’t dispute that the GFC bailout of Australian banks via government guarantees was the right thing to do. But the charge that was rendered on the banks was utterly inadequate and was, implicitly, a bailout, given no private institution would provide it.

It should have been framed differently to preserve the integrity of the public/private divide. The government might have taken an equity stake, given they were adopting the risk. If that was seen as too difficult at the time, the government should afterwards have called a fair dinkum ‘Son of Wallis’ inquiry in which the failed rules governing the public/private divide could have been publicly re-examined and redefined. Such as inquiry could also put a framework around the government’s seemingly open-ended commitment to purchasing private mortgage backed-securities.

As things now stand, we have a system that utterly confuses bank incentives, moral hazards and the integrity of the national Budget, and, while I do not believe that Australian regulators are as compromised as their US brethren, and that they are doing a god job of clearing the system of its imbalances over time, I’d feel infinitely more comfortable if the rules were redefined in absolutes. So long as a bank CEO can call the Prime Minister and reactivate the government guarantee then the differences between the US plutocracy and our own are one of degree, not kind.  The IMF implicitly sees this too:

45. Despite the factors mitigating the risks, staff recommended that the authorities encourage banks to reduce further their exposure to short-term external debt. APRA could consider the merits of introducing measures along the lines of the Net Stable Funding Ratio requirement ahead of the 2018 schedule being discussed by the Basel Committee.


Houses and Holes


  1. It will be too much of a challenge for the sheeple to understand this and rise against (it is just too abstract), atleast in the US people have lost houses.

    Can you believe ..citizens of a country read a 60 page IMF report and went out to protest?

  2. In some ways regulatory capture and moral hazard are worse here than in America.

    For example, I don’t think a Fed official would ever come out and say that they would lend to banks even after the marketplace had declared their business model broken; which is what Guy Debelle more or less said earlier this year.

  3. I’m sure the masses would be prepared to do it, but it would take some form of populist media to TELL them to do it. Which doesn’t seem likely.

  4. they would be better off marching on the whitehouse..

    but i doubt many of the hipsters would understand why..

  5. good on these protestors, if politicians wont hold these wall street criminals to account at least the public is trying to.

    one of the key missing ingredients in the healing process is the prosecution and jial time for those responsible for the economic collapse. If people know justice will be served they become confident it wont / cant happen again, when they see these people getting away with their crimes they lose faith in the system and this becomes major impediment to a recovery.

    After the savings and loan crisis over 1000 bankers were thrown in jail. After the GFC, no one is yet to do time. Start sending wall street crooks to jail and you will see confidence return to the economy. for US politicians though, this means throwing their friends and biggest political donors in jail which is why its not happening.

    • Can’t beleieve it has taken this long for this movement to get off the ground, how long before we see civil war in the US?

      • not much of a civil war. more like 300 mill americans with pitch forks and slip knots chasing 100, 000 bankers with helicopters out of the country.

        more like the russian experience where the oligarchs went into exile with their stolen loot

  6. I’m just glad you guys at MB are finally starting to pay this some attention. I have a feeling that this could have effects on so much analysis done to date that it will all change, like an unknown variable that has popped in to become a primary factor. And it is so very much needed. Watch this space.

  7. Australia’s Treasurer, the world’s best, on Saturday AM when asked a quesyion relating to the IMF report that Australia’s house were 10-15% overvalued replied, maybe not the exact words, ” No they are not because Australia has a housing shortage”

    Does anyone else think that this was an absurd reply, showing a lack of knowledge and a lack of empathy for the many mortgagors and potential home buyers in this country??

  8. A very good post H&H.

    A few points:
    – Maybe Aussie’s are too busy paying their debt to have time to protest in Martin Place other than the full time Getup and others who seem to find the time.
    – Agree that our regulators are better than the US, but it still didn’t stop invisipower, and we had to wait for a US Congress FOI to find out the truth.
    – “IMF may prevent it from calling a spade a spade” …Christine Lagarde did just that on the EU banks liquidity and was smashed for it until they realised she was correct. I’ll bet she didn’t get an apology.
    – I don’t think we’re anywhere near as bad as the US, but how long will that last for.

    • Agree your last point. We are nowhere near as bad as the US … yet … and therefore the level of public anger and disbelief that still no-one has gone to jail for the GFC is very much higher in the US then here. Example – Reformed Broker website has some commentary on two BoA executives’ farewell payouts and linking that to the protests. I am in no position to evaluate whether the payouts are fair on a standalone basis but it seems that in a broader context that the timing is unfortunate.

  9. Now that our housing bubble is collapsing many Australians will develop much more empathy for their American, Japanese, Irish and British cousins. Not even China has escaped real estate bubble madness.

    Occupy Wall Street will become a global phenomenon not unlike the Global War on Terrorism.

    What a shock to discover that the economic terrorists who designed and orchestrated housing bubble Ponzi schemes are by far the most dangerous threat to us all.

    • “What a shock to discover that the economic terrorists who designed and orchestrated housing bubble Ponzi schemes are by far the most dangerous threat to us all.”

      Yes, I believe they are a bigger threat to our “way of life” than the Taliban ever were.

    • “What a shock to discover that the economic terrorists who designed and orchestrated housing bubble Ponzi schemes are by far the most dangerous threat to us all.”

      I really hope people dont discount the role of gov’t in all this

      • We have the Tea Party patriots fighting the government’s role (read as Fannie/Freddie Mac & Barney Frank) in the sub-prime crisis – so need for a duplicate people’s movement.
        OWS will dedicate itself to fighting Wall Street and Tea Party will fight Big Government. :p

  10. Great article.

    Macrobusiness, with its various contributors, seems to evolving between two poles:

    1. Detached intellectual analysis and commentary- pure forum.

    2. Strident advocacy of common grievances, arising from economic injustice and exclusion- just short of an exhortation to get organized and get active.

    I am not suggesting that the tension between this twin foci necessarily needs to be resolved.

    But it will be interesting to see where the site heads in terms of forum and/or praxis.

  11. Why isn’t there an Occupy the White House or Occupy Congress protest? It was the politicians, bureaucrats and regulators who were mainly responsible for the GFC. It was govt policy to reduce lending standards, encourage easy money and subsidise home-ownership.

    • People tried pressuring politicians to do something and it didn’t work. All they got was a rotation between two near identical parties.
      So finally they have gone to their employers to protest.
      Wall Street owns the white house and almost all of the politicians, as demonstrated by their policy.
      Obama needs to be told ‘Sorry, we only talk to the organ grinder’

      • Not much different from voting in Australia.

        Rudd stimulated the housing market by slashing interest rates and increasing the First Home Vendor Grant so that astute and savvy real estate speculators could dump their overpriced homes on young families.

        Still waiting for Julia to abolish negative gearing. Nice to know that politicians are more interested in being re-elected than in helping to make home ownership more affordable. No, I don’t wan’t you to slash interest rates as it will only result in higher inflation.

        Encouraging people to take on more debt and leverage themselves to speculate on property has been political policy for too long. Yes, time for Australians to speak directly to the ‘organ grinder.’

        • In all fairness to the politicians, even if they were honest and trying to act in the interests of the people rather than the politicohousing complex most their economic advice comes from the Flog. So when you do get someone like Ken Henry making sense with political suicide they are real hard to listen to and really out numbered by the IMF and Bank economists with promises of policy that will save the economy and keep backers happy, if only Neo-Classical economics worked.
          My Economist friend has a saying ‘people only listen to Economists when they are wrong’.
          For listen to also read pay for.

    • It’s a symbolism thing. The protesters are on Wall St. instead of Congress/White House because they reckon that Wall St is where the real power lies in the US.

      The amount of money from Wall St that is used to lobby politicians on both sides of the floor is massive, and the infiltration that former Wall St guys have in positions of power (Treasury, the Fed and Cabinet) is huge.

      So maybe they aren’t so dumb for picking Wall St as the main point of protest?

      • I disagree that the real power is in Wall St. If that is so, then why do they lobby politicians? What are they lobbying for? And why do they seek appointments at the Fed and Treasury?

        The answer, of course, is that the real power is indeed in Washington.

        • exactly, Wall Street is nothing without Washington…

          I can just see this now the hipsters in the street screaming for bigger govt and more social protection (handouts) to protect them from greedy Wall Street..

          • Follow the money. The money is coming from Wall Street in order to control the government. We know full well who is ultimately responsible for this economic terrorism. Let us not be fooled by divide and conquer strategies.

        • Politicians in the US are not afraid of the people, I would think that’d be obvious?

          They are afraid of losing campaign contributions though.

    • Why isn’t there an Occupy the White House or Occupy Congress protest? It was the politicians, bureaucrats and regulators who were mainly responsible for the GFC.
      Because the protestors know that the WH, Congress and both poltical parties have already been bought by Wall St with campaign donations and the regulators have been bought over with revolving door jobs.
      So instead of tilting at the various branches and diffusing themselves, protestors are merely going to the root/source of the problem – the buyer of pollies and regulators.

  12. The most important thing these protestors need to do in my opinion, is avoid it becoming a partisan debate. The democrats are trying to “own” this protest movement, but democrat politicians have just as much responsibility in the deregulation as the republicans and allowing finance industry interests to become more important than the interests of the electorate.

    When the tea party first started it wasn’t a republican thing, but it slowly got skewed as republican interests infiltrated and took it over as a partisan movement. I really hope the same thing doesn’t happen with this movement too, but the lure might be too strong.

    • +1 for the first para – Rubinites under Clinton and Obama are the prime suspects.
      -1 for the second – Tea Party started off at CNBC and exploded with Koch Brothers funding (AFP/FreedomWorks) and disproportinate Fox News media coverage.
      so nett 0 🙂

  13. actually I disagree. I have had the unfortunate pleasure of relying on the financial ombudsman service for justice in 3 disputes and ahve found them incompetent, unprofessional, unskilled in the markets they supposedly provide poor man’s jsutice to. Unfortunately, the Minister ande ASIC and consumer organisations declined the invitation to investigate these systemic flaws based on my 3 dispute files.
    We pretend that many aspects of consumer regulation are working. The NSW Department of Fair trading similarly has no mechanism to remedy rogue businesses against consumer complaints except to insist on ad hoc individual appeals. The real estate industery and its variants maintain their legitimacy under such dubious patronage.

  14. Should we occupy Martin Place?

    Yes, we should. Isn’t that the place where the powers reside and made and still make the decisions about Australia’s future mostly ignoring the will of the people?

    Democratic governments are not elected to ‘make policies’ on the run ,but to implement the policies approved and agreed to by the majority of the people.

    Me, i can’t recall ever voting on the RBA’s monetary policy or the government’s fiscal policy and budget.

    • “Yes, we should. Isn’t that the place where the powers reside and made and still make the decisions about Australia’s future mostly ignoring the will of the people?”

      That’s a bit dramatic… RBA only sets the interest rate, and the interest rate isn’t the be-all and end-all of economic prosperity.

      We do in fact vote for politicians who set the financial policy agenda.

      • Low interest rates set by the RBA and sustained for long periods have certainly wrecked havoc on my economic prosperity. For the longest time, house prices were rising faster than I could save. Taxing term deposit rates while allowing negative gearing has skewed the game heavily in favour of property speculators.

        Of course the game is not over and it is now with much joy and celebration that I see house prices declining and property speculators losing money each month that they fail to sell.

        I do feel genuine sympathy for homeowners who were tricked into taking on huge sums of debt in order to prop up the Ponzi scheme under the First Home Vendor’s Grant. The government not only failed to protect consumers but they lured them with toxic candy. Such abuse of parental power if detected by a teacher would result in Mandatory Notification.

        • Some facts, please. The RBA was setting rates much higher than pretty much every other major developed country for most of the past ten years. And it has no control over tax policy.

        • Yeah except RBA is not responsible for negative gearing, or FHOG, or any other financial policy. RBA’s responsibility is monetary.

  15. The only reason to occupy Martin Place is its a lot more convenient to get to than Canberra.

    The simple point is the government guarantees were put in place in order to stop the contagion affect of the banking crisis and ensure there wasnt an unncessary run on the banks. The banks did not borrow excessively using the guarantee and in fact paid a fee for the use of the guarantee… a point seemingly overlooked by many.

    Sure, those in the US may have a right to complain, but I fail to see what Australians (and NZers) have to be protesting about. The criminal liability currently hanging over company directors (including banks) will only see Australasia emerge from the GFC significantly higher up the OECD ladder.

  16. I believe there is an occupy Martin Place meeting taking place on Saturday at 2.30pm.
    Most people cant make it during the week as they are busy working to pay off debt.

  17. I think it is a little unfair to tar our bankers with the same brush as their Wall St colleagues. Bankers in Australia have been much more inclined to stick to their core business of borrowing short and lending long, in other words acting as financial intermediaries. The Wall St “Masters of the Universe” decided there was much more money to be made by stitching up domestic and overseas investors who were conned as to the true nature of debt with the connivance of the ratings agencies. When the resulting ponzi collapsed, it almost took the entire financial system with it.

    Banks in Australia have in general simply pandered to the zeitgeist of “have it now, pay later”. Although they have taken advantage of this modern paradigm, I don’t think we can blame them for society’s greed and impatience.

      • Partly. It is in the interests of society as a whole to have a stable banking system, so society as a whole should be willing to pay (some of) the price. I would say this is particularly the case if the cause of a bank being in difficulty is largely an overseas crisis over which it had little or no control.

      • “I have simply asked that they be held responsible for their liability management. Is that really unfair?”

        Not at all, and the best way to hold them responsible is the prospect of bankruptcy.

      • PS, I have reread the article and I notice that you aren’t against the bailout of our banks, just that you think the price was too low. Depending on how much higher you think it should have been, we might actually agree!

          • So what do you think would have been a fair price? A year’s profit? That would have put a pretty big dent in the cost of the government’s stimulus package. Might have spooked the share market, though.

    • Yes, go ahead and blame the victim. Let’s not forget, however, that savers were punished with low interest rates and easy lending practices. Let’s not forget the fact that house prices were rising faster than most people could save.

      No, rampant house inflation where prices double every seven years does not exactly encourage patience among potential buyers. Many responsible families looked in horror as they were completely out priced within a few years of waiting patiently for prices to fall.

      Then the government came along and waved money in front of more potential victims to keep house prices from falling. Yes, blame the victim–the media gave us lots of warning and unbiased economic advice over the last few years.

      We blame parents when they have badly behaved children. We blame parents if they allow their kids to eat loads of junk food and stay up all night. Parents who only give their children what they want are not excused. Why should we be prepared to excuse the crucial role of bankers in this mess? Why should we excuse the government for its lack of good economic policies? Why should we excuse the media for almost exclusively giving biased economic commentary?

      Blaming the victim is what bullies do.

      • Becasue there is a big difference between adults and children.

        If you expected (hoped for, even) a big fall in housing prices, and it didn’t happen, why is this someone else’s responsibility?

    • Alex,

      Perhaps our banks have been less “adventurous” because of much tighter prudential regulation here compared to the US. APRA hasn’t received the credit it deserves for its role in regulating our banking system.

      For example, it was conducting detailed stress tests of ADI exposure to serious falls in housing prices since 2003, and has repeated these studies regularly since. e.g.

      In the US, its been “fraud as a business model”. See, for but one primary source exemplar, the warnings expressed in this letter to the SEC from a professional structured finance analyst, Janet Tavakoli, dated Febuary 2007:

      Methinks the OWS protesters have got it absolutely right.

      • I agree with you. It probably was at least partly regulation that restricted our bankers from pursuing the same path as the US. I still don’t see that we should berate our bankers for something they didn’t do. Protests in the US are another matter, although I suspect the protesters are the usual crowd who turn up to any G20 meeting to protest about globalization. At least this time they have a point.

  18. When anybody shows me any other private business that has its business model and profit forever and a day backed and assured by the public, i will agree with ‘don’t protest, it is different here’. But until we all share a banking system that is incapable of sustaining itself without taxpayers guarantee – we do have a right to protest!

  19. Yes, of course we must occupy Martin Place to put an end to the greedy approach of a few in our society, i.e. eBay Australia allowed to do business in this country but stashing away the proceeds (in the billions) in Switzerland. Laws must be changed to prevent such companies as eBay to take advantage of their global status, anything and everything goes at eBay, they recently (22/09/2011) increased their seller fees (Feature Fee by 150%, Final Value Fee by 50%, etc…) at almost no notice (as usual) and will stash away those additional profits in Switzerland. Banks and mining are other examples I could take. Isn’t apathy (of our medias, politicians, the ATO, etc…) ruining it for a vast majority?

    • eBay has the right to stash its profits wherever it likes. Its none of your business. Nor mine.

      If you don’t like eBay, use a different service. Or start your own.