Murray myopia seizes Kohler


Alan Kohler nicely illustrates the closed-shop nature of Australian elite thinking today in arguing that the Murray Inquiry has no point:

Joe Hockey committed the Coalition to a “Son of Wallis” or “Granddaughter of Campbell, whatever you will” in a speech the AIG National Forum in October 2010. It was the ninth point of a “Nine Point Plan” about banking, which he felt obliged to produce because the then Treasurer Wayne Swan was getting some traction with his attacks on the banks.

Interest rates were going up and the banks, it was believed, were colluding. There was obviously a cosy oligopoly at work and Something Needed To Be Done. Hockey’s nine points were all about banking competition and gave him something to say on the subject that week, which is what Oppositions need, every week.

…In my view there are two things the Murray Committee needs to focus on: superannuation and the internet.

As discussed here many times, retirement saving in Australia is a mess. No one knows whether they have enough money for a long retirement, no one knows how to make sure they do have enough, and there’s an industry that has grown disgustingly fat skimming excessive fees from the confusion.

…Meanwhile banking is moving online, where national borders don’t matter. As a result PayPal and Google, among others, are becoming quasi-banks, and new forms of money, led by Bitcoin, are popping up. What are the implications of this for bank regulation?

Can I suggest our elite pause for a moment to focus on structure? A once per decade banking inquiry following a global financial crisis does have a few points to address. Broadly speaking the inquiry should be examining whether the radical rewriting of the Wallis banking architecture by regulators during the heat of crisis was a good idea, has left us with any unwanted legacies, ask where it’s going to take us and whether we want to go there. Questions might include:

  • why are the banks still implicitly guaranteed by the government, as ratings agencies keep saying?
  • what is the relationship between the banks and Budget and are we happy with it?
  • do we want this situation to continue or to reshape it in a way that alters the political economy of the nation?
  • how do we engineer sustainable competition?
  • how can banks be brought into a national productivity agenda?
  • are we happy with banks channeling absurd amounts of money into non-productive assets?
  • what is going on in the bank’s internal risk models?
  • is the banking system as sound as it appears given the reliance of the Budget upon China?
  • what does the structural adjustment to higher commodity exports mean for banks?
  • how can bank funding be stabilised?
  • how can deposit funding be sustained?
  • how do carry trades and currency wars effect the banks?
  • is the RBA doing a good job?
  • is APRA doing a good job?
  • has the separation of prudential and macro responsibilities worked in the heat of battle?

Basically, the unanswered questions are endless.

I agree with AK on one thing. The inquiry will be about nothing so long it is run by one of the key architects of the problems it should be addressing, and our most prominent journalists say that it is.

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  1. I’ll say it again (or in this case quote someone far better than me):

    “[it’s a] … credibility trap, in which the changes, investigations, and reforms necessary to restore trust to an economy or market are rendered unlikely because doing so would expose a pervasive corruption that the principals fear would destroy any remaining trust”

    and can anyone here spell “control fraud”?

    Nothing good will come of all this. It will result in further entrenching those in the club at the expense of everyone else.

  2. Other questions might include:

    * why did Australia endorse the FSB’s plan for “resolving the problem of TBTF” at the 2010 G20 meeting, despite not knowing what would actually be in the plan — since all they had to go on was a “Progress Report” including nebulous “Recommendations” — and the actual details were not finalised for another 12 months?

    * is it not somewhat fallacious — and dishonest — to implement a new regime directed by an unelected foreign body, one chaired since inception by Goldman Sachs alumni, to “resolve the problem of TBTF” banks “without exposing taxpayers to risk of loss”, by stealing the savings of taxpayers?

    * what unintended consequences might arise as a result of heeding the IMF’s directive to alter (weaken) ASIC’s “immediate and continuous disclosure” rules, allowing banks and regulators to hide information from “investors” relating to possible “resolution” proceedings, in order to avoid “depositor runs”?

    * what manner of “safeguards”, to “avoid destruction of value” on OTC derivatives, are regulators / the government looking to offer the banks, per AFMA’s demands of 11 January 2013, in return for cooperation on implementing the new bank “resolution” regime?

    • Personally, i’d much prefer to see you head the inquiry Op8, than some ‘don’t upset the rich bankers’ guy who happens to be a rich banker.

      God save us – facepalm.

  3. Return on physical assets employed would indicate that banks are engaging in oligopolistic behaviours assisted by the barriers to entry imposed by RBA and government.

  4. Murray will address the criteria defined in the terms of reference and I am confident he and the panel will do a reasonable job.

    There is a small chance there may be an addendum responding to some concerns you list – Murray may be an occasional iconoclast. Even more interesting would be a dissenting position. Probably not from Murray though.

    • mine-otour in a china shop

      Yes defining the terms of reference by civil servants is the key part of this task in getting to hear the specific messages you want.

      Then you pick the humans who can deliver those messages. A small addendum should do the job in easing fears that the TOR were too narrow. I doubt dissenting voices will be welcome though.

      Then the icing on the cake – creating an inter-departmental working group committee set up to work with the banks to examine the recommendations.

    • “Murray will address the criteria defined in the terms of reference and I am confident he and the panel will do a reasonable job.”

      I’m confident it will be something straight out of Yes Minister.

      ‘Minister, two basic rules of government: Never look into anything you don’t have to. And never set up an enquiry unless you know in advance what its findings will be.’

  5. “why are the banks still implicitly guaranteed by the government, as ratings agencies keep saying?”

    I don’t know whether this is the reason, but the banks guarantee is the only way to keep the smaller banks viable, because wise people would spread their savings among more banks. This makes more competitive the banks’ market.

    If the guarantee disappears, then most savings will flow to the 4 too big to fail or will inflate further although inflated housing prices. Which one is better for the society???

    • @Lori, I think you’re confusing two guarantees here.

      The savings deposit guarantee which helps support smaller banks by putting people at ease that their money is safe.

      The implicit guarantee for the TBTF banks which doesn’t help smaller institutions as they aren’t seen to be covered by it and hence their funding costs are higher than the big four.

  6. Control fraud my arse. This is global shakedown. Sorry for posting above in another related article. It is out of control. The BIS HAS LOST IT. SHIT DEAD AHEAD!