The fall and fall of Ken Henry

From top policy doyen, how did it come to this? Via Domain comes secret minutes of NAB meetings five months out from the royal commission:

…The EY team needed to know what [Ken] Henry thought so it could help the bank prepare a report, required by the Australian Prudential Regulation Authority (APRA), that would assess NAB’s performance on risk management and culture.

Startlingly, the chairman said he was “confident” the bank was still selling products that would trigger compensation for customers in the future. Confidential minutes of the interview said he “highlighted an example of SMSF [self managed super fund] borrowing to invest in managed funds”.

…Underlining the whistleblower’s concern was that much of what was discovered in that review, including what Dr Henry and others said in meetings with EY, did not make it into EY’s draft report.

…They lay out NAB’s failure to tackle long-standing issues in its wealth management division, new anti-money laundering breaches and an internal rating of its financial crime risk as “excessive” and “not effective”.

At the time of the review last year, NAB’s own risk ratings for compliance had been “red” on its internal traffic light system for at least 20 months, operational risk had been “amber” for 35 months and regulatory risk had been “amber” for 26 months, according to leaked internal NAB reports.

The reports go much further than Henry’s royal commission admission that the compliance rating had been red for a long time.

Jeez, Ken.

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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  1. Wasn’t it moral decay that led to the fall of the Roman Empire? In my darker moments this feels like the end of times.

    • Dom, I was talking to a mate today about this. We’re not alone thinking we’re done for. The thing is these muppets don’t go to prison, and it’ll never get any better until that happens. They have to loose everything …begining with their power, and then their money. The RC solved what?

      • Just shows what a corrupt weak as p1ss country we’ve become and Morrison the smug cvnt knows it. Our egotistical complacency will be our downfall and not a moment too soon.

  2. Even StevenMEMBER

    Hahaha. If you think this is bad… spare a thought for what happens in the ‘unregulated’ or only lightly regulated industries. Real estate, anyone? Retail? Manufacturing? Power generation and transmission? Telecommunications? Medical treatment?

    It’s everywhere you look.

    So NAB charged customers a few bucks more than it should have. Which of the above industries WOULDN’T have… ?

    Not sure whether to laugh or cry.

    • The corruption starts with the corruption of public money.

      Once credit creation was deregulated it was off to the races.

      Leaving to one side my preferred objective of public money administered in the public interest, we are not even having a debate about re-regulating credit creation by the private banks.

      At best we get a bit of MP-LOL which is as absurd as it sounds.

      You can’t properly regulate credit creation until you admit

      1. That it should regulated

      2. It is a policy responsibility of government and not some “independent” captured outfit like APRA

      • Jumping jack flash


        The system would work if they hadn’t removed the natural feedbacks like checking the money supply and properly accounting for inflation and feeding that all back into setting interest rates.

        Once those, and probably more, fundamental feedbacks were broken (as they needed to be to generate infinite debt) all that was left to do was for the banks to put on the striped suits and the top hats and start yelling “Get your cheap debt here! Cheap debt! Get rich now, no questions asked, no requests refused. You sir, look like a man who could do with some extra money, enquire within my good fellow…” and so on and so forth.

      • Fitz ….

        You may be surprised that central banks were at one time [pre 70s] not so chockablock with economists E.g. first with Chicago school Milton Monetarists and then Main Stream neoclassical – neo/new Keynesian quasi Monetarists.

        Yet even then Central Banks were not central to advising regulatory forbearance upon – what ever – political party won an election, see past freedom and liberty medal [tm] winnars …. Laffer …. chortle ….

      • I think some need to consider the use of the world – natural – and its epistemological underpinnings …

    • The corruption of money starts with the corruption of underwriting standards, which started with corruption of economics on forwarding a narrow ideological based view to oversight, and a blurring of state and private functions, then it was exported globally under the PR of democracy and markets [tm] ….

      Incentivize corruption and then say the money did it …. chortle ….

    • I had a product that requires official government testing to prove its efficacy. The active ingredient had to be used a high amount to work, making it too expensive for me to produce. The distributor told me to make the product to spec and then once the formula was approved to massively reduce the active ingredient to make it affordable to produce. To quote the distributor “Once you’ve got the approval, you can do what you like”

      This is completely untrue but nobody checks the products once its in production and has ticked all the official boxes. Manufacturers know this and are running riot with it.

      And this happens everywhere and nothing changes until there is a catastrophic failure like the apartment building industry.

      I chose to do the right thing and not make the product. This is why I’ll never be wealthy.

  3. I can see the EY partner reviewing the notes and striking the details of that meeting out of the report. Number 1 priority … protect our revenue.

  4. The arrogant complacency in the current neoliberal model is breathtaking.

    The number of very intelligent people I meet who are absolutely certain about its merits and have no idea about it’s fictions and fables and corruptions is amazing.

    We have an entire generation of policy makers and movers and shakers confidently striding us all off a cliff.

    And yes, they don’t take kindly to having the problems drawn to their attention.

    After all they have gotten fat and corpulent on the model so it must be perfect.

  5. Ronin8317MEMBER

    It is known as ‘monetizing your reputation’, exchanging integrity and respect for $$$$.

  6. I have a friend in compliance and auditing and it’s about time they had more power and occupied a place much further up the totem pole. From what I gather they’re under pressure all the time to not report accurately.

    • Yep. I’m in a similar field. Be damned if you call it out how it is. The amount of fiddling that happens to fit a pre-determined narrative is mind boggling.

  7. The only issue here is NAB thought it would be a good idea to appoint a life-long civil servant to the position of Chairman of the board of a bank. The honestly and forthrightness of Dr Henry has ultimately been his undoing. It’s almost poetic; what made him successful in public service doomed him in the private sector.

    A life-long, thru-the-ranks banker would have charmingly told lies to the RC, regulators and auditors, and collected his million-dollar bonuses for another 5 years.

    Tellingly, we have as a nation, chosen to punish the forthright and honest, and leave those that lied by omission to flourish.

    • Looks more like arrogance than honesty. If he was honest he would have told his customers.

      • That’s the thing, he cannot, as that would be considered ‘financial advice’ which he is not qualified to give. The products he is referring to are not in contravention of the law, even though he can reasonably forsee they will result in compensation at some point.

        All lending to SMSF, which was hurriedly legalised in about 2007/08 will one day be subject to compensation claims, when the asset values tumble and people are left with no super for retirement .

      • Correct. He didn’t tell lies at the RC. He told it to go fvck itself. At some point that arrogance crossed over to incompetence. Or worse (for him), his reputation just masked that incompetence.

    • 100%
      I think this is all an exercise in Ken Henry being punished for asking for the royal commission.
      He broke ranks… Is this the reason he was the only head of a bank to go down as a result??

      • Nup, don’t agree. His performance in the stand was his undoing…there for all to see and shudder at. That, and the fact that Thorburn was way out of his depth.

  8. Stewie GriffinMEMBER

    Let me outline how the banks are going to side step any and all regulation with Financial planners, while still achieving exactly the same result.

    Under the pre-RC model the Planners were all on the books. This means that the Banks carried all the overheads for them, including both reputational risk and compliance risk/management costs. Under this model the Banks at least had a small modicum of incentive to moderate their planners behaviour and weed out the very worst of the planners working for them – some Banks did a reasonable job, others, well…. CBA.

    Under the post-RC model all the planners and their associated planning businesses have been, or are in the process of being jettisoned. This frees the bank of the reputational risks that causes their CEO’s bowels to loosen, while also pushing all the costly regulation and compliance costs onto the individual planners.

    So this is what will happen, and this is why there will be another RC on wealth management within 5 to 7 years.

    The banks have all spent hundreds of millions of dollars investing in their wealth management platforms. The dodgy planners, who use to work directly for the banks, will now notionally work for themselves but indirectly for the banks, by using their Wealth management platforms.

    Good planners will still meet all the compliance costs, bad planners will just laugh at compliance costs, or more likely use it as an excuse to charge higher fees and then pocket it anyway. The banks will still have investors money funnelled into their products and they will still be clipping the tickets of every private tax donkey whose superannuation crosses their platform.

    But at least the Regulators in the form of ASIC will be there protecting the public I hear people saying – auditing those financial planners to ensure they are adhering to their compliance requirements, will keep our financial retirement system safe.

    Now under the previous pre-RC regime most of those Financial planners who’ve now been set free, like so many alligators flushed down the toilet, were all administered under 50 or so licences, held by the wealth management business that the Banks and big funds management companies owned. ASIC didn’t have to do too much, as with only 50 licences or so to administer they would only have to do 5 or so audits a year in order to at least pay lip service to the notion of regulation.

    Under the new post-RC regime ASIC are going to have to regulated hundreds if not thousands of licence holders each year.

    This will end exactly as it did last time. The banks making money, dodgy planners ripping off the public and the regulators failing miserably in their efforts to ‘regulate’ the market.

    • “The banks will still have investors money funnelled into their products and they will still be clipping the tickets of every private tax donkey whose superannuation crosses their platform.” – spot on. Putting Super to 12% will ensure that any money lost through planners and wealth will be recouped through the Super ticket clip. Why do you think Morrison is so keen for Super to be lifted to 12%?

      • Stewie GriffinMEMBER

        Nothing of substance will change, the good and bad players will merely be reshuffled, and the explosion in adviser licences will ensure our under hapless, under-resourced regulators will be unable to prevent round two from occurring.

  9. regulatory risk had been “amber” for 26 months

    Amber? I think their risk engine needs re-calibrating.

  10. I fear for this whistle blower taking on such powerful institutions. Remember the guy blowing the whistle on the ATO is facing 26 life sentences. Wonder how many life sentences this person will get.

    • What else can she do? If they go to hard the LNP will simply sell the ABC off and it will be gutted like a fish.

  11. Ken’s only crime has been repeatedly telling the truth where others have lied through their teeth. Hayne misdiagnosed it as a lack of contrition, when others were prostrating themselves to save their skins; and similarly here it seems Ken’s crime was to divulge a matter of material interest to an auditor (where others surely would not). F!ck me, string the man up.

    • With respect, that’s bullsh’t. There’s telling the truth and there’s recognising the gravity of past ills and being capable enough to right them, in fact and in spirit. He was the Chairman FFS…he wasn’t being paid to just sit on a couch and commentate on NAB’s fvck-ups.

      • Respect noted. I realise this opinion of mine seems very much in the minority, but I maintain the only difference between him and the rest was he didn’t lie as much about his bank’s wrongdoings. I also respect your contrary view.

      • Sadly, you have a point…when telling the fewest lies is the benchmark for integrity, we are indeed in trouble.

    • Even StevenMEMBER

      I think you are right, dhp. He’s being more honest than his peers. I’d still string him up. But his peers should be hung, drawn and quartered.

  12. Good goat … corruption as far as the eye can see and most are banging on about X or Y and completely refuse to see the decades of good works it took to get here, not to mention the agency that drove it.


    Renegade Economists October 1, 2014: DOUBLETHINK TANKS, TAR SANDS, WATER & IMPERIALISM.

    Karl Fitzgerald: This week on the Renegade Economists we’re joined by Professor Michael Hudson, the author of The Bubble & Beyond, Super Imperialism, and a host of other books. You can read his work at Certainly our favourite guest here on the Renegade Economists and Michael, today we’re going to have a look at the role of think tanks in sculpting the American mind and the public policy that flows from that. What’s your take on the role of think tanks in American economic history?

    Michael Hudson: Well, today they’ve become basically public relations organisations and they’re subsidised by groups with political agendas. The first major think thank was in the 1930s and it was a very good one at that time: the Brookings Institution, headed by Harold Moulton. They wrote America’s Capacity to Produce & to Consume which, without being Keynesian, made the same points that Keynes was making about the need for consumer spending and the need for economic revival. And that was really the main think tank one heard about during the 1930s and even the ‘40s.

    Later, think tanks began to be formed on the right-wing. A military think tank, the RAND Corporation, was founded in California. Herman Kahn came from there, and then the Department of Defense funded his ideas at the Hudson Institute at Croton-on-Hudson, New York. He was the model for Dr Strangelove. I joined him as the number two man and economist in 1972, just as my Super-Imperialism was published. It proved to be a big hit with the Defense Department in Washington, which used it as a “How to do it” book. My first job was to explain just how America was using monetary imperialism to get a free ride from other countries. Herman said that this was part of the “good news” that he wanted to spread.

  13. Maybe he gave up fighting the good fight when his review of the tax system came to naught.