The economic narrative of Australian politicians (read mostly Kevin
Rudd) and some others on the world stage has decided that the cause of
GFC (Global Financial Crisis) was insufficient regulation. This
theory reminded me
of the Doonesbury strip posted a few weeks
Another powerful group of theorists is the "Global
Warming Alarmists". These powerful theorists have established
that, on the balance of probability, our combustion of carbon fuels has
caused the global temperature to rise. The truth is, the costs of
the remedies they propose to reverse or stabilize warming far outweighs
the cost of remedying the predicted damage.
My narrative on the GFC is different.
Governments love big corporations (most especially financial
corporations) because they are so easy to tax. Conversely, small
(1 or 2 man partnerships) are really hard to extract taxes from.
So government has been making regulations that favor big
corporations and discourage small businesses. This process is
insidious, and the method is the (voluminous) fine print. Such
regulation, by favoring large corporations, inhibits
the operation of an efficient market. I have heard complaints by
a one man business that he needed to hire two people just to deal with
the regulatory requirements to run his business.
Another instance. In Australia, it is virtually impossible to
buy a block
of land and build a house. In the area around Blayney a permit to
build a home cannot be obtained unless the size of
the farm is around 1000
acres. (An economic farm in that area is generally considered to
be about 400-500 acres.) This is passed off as legislation
"intended to make farming efficient by keeping farms to an
economic size". In practice it helps the big home building
corporations buy up huge tracts of farmland, have the government rezone
residential, and proceed to build and sell hundreds of houses. If
you are not
one of the favored oligopoly builders, you can't get your land rezoned,
and cannot build homes. This has caused the scandalous
increase in home prices. A 2br home costs around $100,000 to
build, but to buy that home on a serviced block would cost about
$200,000 - $300,000.
regulatory interference with efficient markets exists in the retail
industry, the finance industry (e.g.
consider compulsory superannuation), the education industry, and the
professional unions (law society, medicine/pharmacy etc).
This web of regulation by government has allowed favored business
develop monopolies and overcharge for their services. The
investment advisory arm of the finance sector monopolies got too
their actions began a sequence of events that resulted in the GFC.
It was also because of regulation that the ordinary punter had no
placement of his compulsory superannuation capital that did not entail
Until the Rudd bank guarantee.
My suggestion for dealing with the GFC is that the government allow the
reserve bank to open an
online deposit account for everybody on the electoral roll.
Access to those accounts could be
provided by commercial contract. The accounts could pay an
which is the set reserve bank rate. Banks would then be free to
competitively borrow from the public at a higher interest, and risk
their depositors money on mortgages which (if the banks were not
careful) could become toxic. If the banks went bust, well
the depositor opted for the higher interest, and should have researched
information as to whether the commercial bank in which he invested was
a secure investment.
prediction? The "liberal" governments in Australia, US and
Europe will proceed to greater regulation of their economies.
This is adding fuel to the fire. The GFC will steadily
All those who invested in stocks in the past few months will do their
January 2010. The GFC will diminish somewhat in the near
to worsen till at least December 2010. As a result KR's
popularity will erode and Malcolm "in the middle" (if he has
differentiated his product) may get a turn after the 2010 election.
Our nerds have expressed displeasure of the government's planned
censorship by closing down the PM's web site.
Our government claims high minded principles that "it intends to
protect our innocents from naughty pictures etc."
Surely the appropriate method to protect us from pornography is to
prosecute those who publish these pictures. Or to make available
free "net nanny" software, and apply net nanny software in schools and
other public locations frequented by children.
I am concerned that once established, such software would be used to
censor politically sensitive information.
Kevin Rudd has made some unexpected choices in the recent weeks.
First there was Telstra, and then the choice of Nelson (the retired
opposition leader) as ambassador to the EU The appointment of
Beazley followed the Hawke & Howard precedent of giving a "job for
the boys" to the party leader he toppled.
What he has planned for
Telstra is probably the best politically
acceptable solution. Howard should not (as I have stated many
times in these pages - read the archives) have sold Telstra with both
copper and the rest
as one package. I suggested that the local loop should have gone
to local government. On second thoughts, that would have failed
because our totally corrupt states governments control local
So Telstra shareholders will ultimately pay for Howard's mistake.
And pay by loss of future
leanings they will. Of course Telstra is enormously undervalued,
so they won't actually lose capital, but that is not the issue.
I can agree that the Rudd "local loop corporation" will probably
deliver more competitive internet to Australians. (What other
outcome would you expect after expropriation of $10-$30 billion of
copper assets?) The 100 MB NBN
will (hopefully) now die a quiet death. It is utter madness to
suggest that somebody should attempt to deliver the same 100 MB service
to remote, rural-urban and city users.
I hope that the proposal to separate out Foxtel is a bluff. That
would leave Telstra in a weaker position than Optus (which retains two
broadband communications media, wireless and optics).
In retrospect, it appears that Ziggy was right to not maintain the
copper network. That is now just so much Telstra $$$
wasted. It is still my belief that copper will ultimately prove
superior (on a cost benefit basis, and possibly on a usable bandwidth
basis as well) to fiber optics. I apologize. I did
not think that our government would resort to such underhand tactics
against Telstra after selling Telstra to the public as a good
appointment was a stroke of genius. Even I started
thinking "Rudd recognises and promotes people for ability, not for
Then cynicism kicked in.