How corrupt regulators helped banks capture the Hayne RC

Via The Australian:

O’Sullivan’s commission could do irreparable damage to the financial system. Everybody’s job, everybody’s mortgage, every loan to every business in the country was dependent on the strength and credibility of the financial system, they said, and O’Sullivan was about to lift the lid on a Pandora’s box.

With the help of a few of his Nationals colleagues, Labor, the Greens and a handful of crossbench MPs, O’Sullivan had just secured the numbers to blow open the casket. On the numbers, Morrison had lost control, and the executives of the major banks were terrified. For two years, they had claimed the sky would fall in should they be subjected to the glare of a royal commission.

Recessions, spiralling interest rates and housing market implosions were all forecast by a sector desperate to avoid scrutiny. Now, it was all but certain thanks to the O’Sullivan bill.

Lines of urgent communication were opened up between the banking sector and the Reserve Bank and the Australian Prudential Regulation Authority, the two regulators charged with protecting the stability of the financial system.

For Lowe and Byres, the national economic interest dictated that the government would have to take a different course from the one it had charted. A royal commission was “regrettably necessary”, the pair told Morrison.

In short, as the Australian parliament closed in on rampant bank corruption – against the wishes of the Government, banks and their shockingly captured regulators – the latter three colluded to retain as much of the sickened system as they could.

Labor, when you get in, call an inquiry into Australia’s rorted financial regulators. The senior ranks are ideologically and practically corrupt, operating far too close to the regulated, with the personnel of both overly intimate and cloaked by a democratically corrosive secrecy. The actual financial architecture between the two is broken as well, with a gulf of diffused responsibility opened at the heart of monetary policy.

The RBA and APRA would not know the national interest if it ran them over in a truck.

David Llewellyn-Smith

David Llewellyn-Smith is Chief Strategist at the MB Fund and MB Super. David is the founding publisher and editor of MacroBusiness and was the founding publisher and global economy editor of The Diplomat, the Asia Pacific’s leading geo-politics and economics portal.

He is also a former gold trader and economic commentator at The Sydney Morning Herald, The Age, the ABC and Business Spectator. He is the co-author of The Great Crash of 2008 with Ross Garnaut and was the editor of the second Garnaut Climate Change Review.

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Comments

    • So true. Through every aspect of our lives dealing with private and public authorities. The one I really want RC’ed are the local councils. I’ve never know one to be there for the residents, and always involved in property rorts and spending our money on their pet projects or new Mercedes. It’s sickening how bad it is now. I think the ALP will look at the regulators, but you can bet there will be deals done, and we’ll get some sh1t policy. When the economy is built on consumption it’s never going to result in any policy that will benefit us. As a silicon valley VP told me, “we need more economic units to target”. I found out that meant “consumers”

  1. Also remembering that ex Treasury boss and therefore ex-officio member of the Reserve Bank (and current chairman of the ASX) Ken Henry who as then chairman of the NAB was the bankers’ representative as good as instructed scummo what the terms of reference for the already rigged royal commission should be.

    https://www.abc.net.au/news/2019-02-05/big-banks-ask-government-to-call-short-royal-commission-letter/10778928

    Lots of stuff that this current government gets up could come straight from an episode of Utopia. This particular event is pure Yes Prime Minister. Perhaps the only bit of real progress to come out of it all is that Ken Henry, by his own doing, got knocked off his perch. (though were not there rumours about that Labor were thinking of bringing him back to run the public service?).

  2. The only answer is to curtail the independence of the RBA. ‘Independent’ means run by the same people as the rest of the FIRE industry.

  3. gballardMEMBER

    It has always been the case that the Regulator of those being regulated inevitably evolves into a cosy ongoing working relationship. The transactional economics of the relationship is one where the regulator gains info from the entities supposedly being regulated in exchange for a nod and a wink, aka as to what was in store that they might like to know about. In other words an exchange of information to everyone’s mutual benefit. In the case of the RBA as the regulator the best example being say an inside tip off in planned interest rate moves. It is all circles within circles and the “raised eyebrow” at morning tea with the governor would often be be sufficient i.e. a wink is as good as a nod to a blind man.

  4. Any true reform of the corrupt mess must be radical. Enforce separation of retail from investment banking. Collect the annual rental-value of sites privately occupied (including resource extraction rights) in lieu of all forms of taxation so that land price, which is theft from Creation & first peoples & future generations, reduces to zero (+ value of improvements on site). Let losses lie where they fall. At one blow the need for welfare state would be decimated. Back fiat currency with a basket of consumables (or house bricks). Our economy would adjust to a rock-solid healthy foundation within a decade.

    • Jumping jack flash

      Here’s a whack idea, how about the government sets up a bank. They could then give out special government-rate mortgages and offer deposit keeping… we could call it something catchy like… i don’t know… the Commonwealth bank… oh wait, that name’s taken… what about the people’s bank?

      Then the government could directly intervene in the market. Remove the deposit guarantee and any other taxpayer props from the private banks because its no longer required, there is a people’s bank in case the worst should happen, and then let market forces prevail…

      It’d be fun and effective

  5. The goss is Treasury had ‘discretion’ over the final report, and this was the reason Hayne did not shake hands with Frydenburg in the end.

    No idea if true, but trust guy heard it from. ymmv.

  6. All framed nicely in my submission to the Royal Commission – http://homdom.blogspot.com/2019/01/twenty-five-million-naked-emperors-and.html

    The Reasons for This Submission
    From the Executive Summary of the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry Interim Report (Hayne, 2018):

    “The Commission’s work, so far, has shown conduct by financial services entities that has brought public attention and condemnation. Some conduct was already known to regulators and the public generally; some was not.
    Why did it happen? What can be done to avoid it happening again? These are now the key questions.
    In this Interim Report these questions – ‘why’ and ‘what now’ – are asked with particular reference to banks, loan intermediaries and financial advice, with a view to provoking informed debate about both questions. ”

    I agree with the Commission that these questions are most important. The principal reason for my submission is that it is important to address the cause of the problem rather than the symptoms.

    Reviewing the Interim Report leads me to believe that the commission may make a finding or findings which places the emphasis on behavioural factors and will not adequately acknowledge the root causes; I believe that the commission can be swayed by anecdotal evidence provided to the commission, rather than looking at all of these problems in the macroeconomic context, and the commission may determine that simply greed is the problem and the solution is simply better or more regulation.

    It is critically important that we look at the origins of these systemic problems and understand that the problem is not simply greed, and that the solution is beyond restructuring regulatory frameworks; The problem’s origins are in the economic policies formed over many governments with the singular purpose of inflating and maintaining a series of unsustainable property bubbles.

    The formation of these property bubbles has been deliberate, a concerted effort between the polity, the banks, the property developers, a self-interested media deriving huge revenues from property advertising, but most treacherously by the institutions responsible for regulatory oversight, particularly the Reserve Bank of Australia by creating the third property bubble, and the Australian Prudential Regulation Authority. What enables these bubbles has allowed so much other misconduct in the banking, superannuation and financial services industry.

  7. APRA needs to be prosecuted. Why are we paying these idiots to let the banks run amok and be protected with taxpayer dollars whilst doing it? It’s a fvcking sick joke.

  8. Jumping jack flash

    Cannot police private enterprise in a free market economy.

    Apart from fiddling around the edges with compliance, but not too much is possible lest everyone claims regulations kill commercial viability, the only thing left is pleading, begging and bribing to make sure rules are followed.

    Of course, had the government a foot in the market then they could directly intervene, however that’s probably never going to happen again.

  9. Even StevenMEMBER

    Not sure how ‘regrettably necessary’ leads to the regulators corrupting the Hayne RC.

    What I would have liked is for RBA and APRA to tell ScoMo that a colon cleansing regime is ‘regrettably necessary’. But I’m a realist.

  10. BubbleyMEMBER

    “O’Sullivan’s commission could do irreparable damage to the financial system.”

    It will be like the tale of the Emperor’s New Clothes. O’Sullivan will be the one to point out the bleeding obvious and like emperor, its ok until someone points out they have been running naked corruption through the financial system.

    Everybody can see it, but nobody wants to talk about it.

  11. The article asks the Labor Party to hold an enquiry BUT never mentions the fact that Labor colluded with the Government to pass the now dangerous “bail-in” legislation or when the Senate enquiry into this legislation was initiated the ALP senator J. McAllister refused to accept all public submissions because they raised the issue of “bail-in” which would have shown to all and sundry labor’s support for such legislation. LNP are owned by the banks but so are the ALP and Greens for that matter.