ARCHIVES 1997-2007  --- ARCHIVES 2007 +



The economic narrative of Australian politicians (read mostly Kevin Rudd) and some others on the world stage has decided that the cause of the GFC (Global Financial Crisis) was insufficient regulation.  This theory reminded me of the Doonesbury strip posted a few weeks ago.

doonsbury sept 09

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 businesses (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.  These corporations buy up huge tracts of farmland, have the government rezone them as 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.

Similar 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 corporations to develop monopolies and overcharge for their services.  The investment advisory arm of the finance sector monopolies got too greedy, and their actions began a sequence of events that resulted in the GFC.

It was also because of regulation that the ordinary punter had no recourse for placement of his compulsory superannuation capital that did not entail risk.  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 interest rate 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. 

Highest probability 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 worsen.   All those who invested in stocks in the past few months will do their dough by January 2010.   The GFC will diminish somewhat in the near future, then
continue to worsen till at least December 2010.  As a result KR's popularity will erode and Malcolm "in the middle" (if he has sufficiently 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 government.

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 even 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 investment.

The Nelson appointment was a stroke of genius.  Even I started thinking "Rudd recognises and promotes people for ability, not for political reasons."

Then cynicism kicked in.

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