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Nightmare on Wall Street - Freddie's Revenge on Australia

As I write, the Australian dollar has fallen to 79c US, Asian financial markets are down 4%, and everybody seems to be wetting themselves. Wall Street has reportedly had its worst trading day since September 11 2001. The collapse of Lehman Bothers and Merrill Lynch has been described as "the crumbling of the two pillars of Wall Street." Investment giant Goldman Sachs has fallen by 12%!

I know a few people who are wondering if this is the first death-throes of capitalism. If the US finance system can't sustain itself, can a global economy centred on its well-being survive?

If Fannie and Freddie, between them, had three times the GDP of Australia, what's been lost here? One hundred and thirty Lehman Brothers Australia jobs, for starters. That's nothing, though compared to the fact that by the look of the Aussie dollar, we've just lost our cash flow.

Importantly, what about Australian Government funds invested in such institutions? Adelaide ABC radio journo Matthew Abraham joked this morning, "Nothing can go wrong, everything's perfectly ok. Your tax dollars are sensibly invested." It felt like very bleak humour.

I've heard an extremely reliable rumour that the South Australian Government is deeply worried about its possible exposure to the continued unravelling of the sub-prime crisis. How many other states might be in similar predicaments? Across the world?

The buck, it seems, stops here. Who is going to take responsibility if global finance falls apart?

US President Bush says that he has confidence that Wall Street can handle this. For some reason this doesn't inspire me to be optimistic.


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The mother of all rip-offs!

According to one US senator, Brad Sherman in a speech, some representatives were told that unless the so-called "bail-out" wasn't passed, martial law would be declared.

Tell me it ain't fascism again.

Not revealing

Well, Alan Curran, I consider most property developers to be at the bottom of the barrel as surely you must know by now my philosophy - "all property ownership is theft "!

I didn't actually say he was a friend!

Richard: "Any good "goss" on which corps are going that you could pass on, Michael?'"

I'll give it a pass. You wouldn't want me start a stock market panic would you? Or would you?



S.A. down $200 mil for infrastructure projects, PPPs deferred

Well, that was yesterday, but for the sake of resolving aspects of the piece:

[AdelaideNow extract]

The state is facing a hit of about $200 million to the Budget as a result of the financial crisis.

Mr Foley revealed on Friday that the state's finances were being hit by reduced investment earnings, but said yesterday the crisis would have no effect on state borrowing or on major projects such as the Marjorie Jackson-Nelson Hospital.

Also yesterday:

Infrastructure experts said some public-private partnership projects (PPPs) might need more government funding.

TheOpposition called for an updated financial statement from the Treasurer to clarify conflicting versions of changes to the state's finances.

Infrastructure Partnerships Australia executive director Brendon Lyons said there was no doubt the global turmoil made the financing of public-private partnership projects more expensive.

Mr Lyons said the Government should be looking at options such as toll roads to fund transport projects to help stretch the Budget further.

It'll be the projects I mentioned earlier, and I'll bet the push for a new arena will disappear again too. 

The new tramline to the pub's front door looks safe, though I can't work how the tracks go from the front of the pub into the train line behind it...  but that, as they say, is (or will be) another story

It was a good idea at the time

I agree with God Vidal - the American Republic was a wonderful idea while it happened.

Watching the Foreign Minister Stephen Smith being interviewed by George Negus I'm convinced not even a bail-out is going to help.

The usual excuses are now being resorted to - the Third World will suffer if this doesn't go ahead.

Well actually it wouldn't . $800 billion would go pretty far in saving the hungry of the world if not solve the crisis. Just as the cost of waging war in Iraq for one year would have solved hunger in Africa for all time.

And it's all about to come crashing down about our ears as well. Talking to a developer in the know tonight who has had all his developments pulled because banks have suddenly frozen loans, I got a good earful of the names of which corporations  will go the wall soon.

It's the realignment we had to have.

Richard:  Any good "goss" on which corps are going that you could pass on, Michael?


Michael de Angelos, the developer you were talking to must be at the bottom of the barrel as far as developers are concerned if he has all his developments pulled. All the developers I know are still doing very well.

How is Labor going to survive without developers' contributions?

Richard: Easy (and informed) answer, Alan: the same way the Libs will.

Tollway Ponzi schemes

Richard, for a start, the writing was on the wall for new tollway Ponzi schemes (for example here, here and here) concocted under the dead parrot model, long before this latest Wall St fiasco.

Thanks, Stuart

Tollways... the Murdoch editorials here in Adelaide have been continual champions of the cause, though Labor have vowed against them.

It doesn't take much, Stuart, to jump across this dead parrot (Monty Python lives!) to PPPs. Where's Trevor Kerr whenyou need him? You don't have to look too far to find Government/Investor parnerships in this town ... Superprisons, superschools, our new aquatic centre, they're all based on private investment.

There's a thought... I wonder how many of our Treasurer Foley's bright ideas have just disintegrated into fairy dust? The tramline extensions? The Transit Oriented Developments?

"Private" investment my backside!

Richard, the only difference between "public" and "private" infrastructure investment since Paul Keating passed into law our inability to decide how best to save for our own retirement is the complexity of the swindle, i.e. the number of transactions involved and the size of the transaction fees.

The Brisconnections float a couple of months ago was the biggest in Australia this year, and by far the most disastrous. After Rupert’s boys and girls spent weeks drumming up business, a $1 installment is today worth 4c (yes, 4c!). Investors have lost more than half a billion dollars on this rubbish. More than $25 million came from the Queensland Public Service’s superannuation scheme alone. The chairman of Briscon just so happens to be a director of that super fund (and the stock exchange), and holds an AM for “his contribution to the investment banking sector and as a contributor to the formulation of public policy.” MacBank pocketed more than $100 million in fees for setting up the Ponzi scheme. By my reckoning the investors would have made a 20% saving if they just piled up half a billion in cash and put a match to it.

Financial Socialism

So this isn't the death of capitalism,but the birth of "Financial Socialism"?

What do you reckon, Paul Morrella?

(Cue snigger)

Those Turnbull policies in full

Perusing the local rags gives us a fascinating insight into the miracle man known as Malcolm Turnbull.

My favourite Oz hack Dennis Shanahan intones:

Despite being Opposition Leader for less than a week, Mr Turnbull is seen as being as decisive and strong as the Prime Minister, equal to Mr Rudd in the field of economic management.

Finally, Turnbull appears to have the luck of being counter-cyclical. While he's made inroads on Rudd as preferred prime minister that Nelson was never able to achieve, there are signs Turnbull has become leader as Rudd's standing goes into decline.

The always amusing Janet Albrechtsen tells us:

Now, at a stroke, the new Opposition Leader has defused Rudd’s firecrackers by the simple device of lobbing a hand grenade in return. Rudd, of course, wasted no time dropping a penny bunger at Turnbull’s feet last week with his call for a bipartisan approach to the republic.

Paul Daley reports in the Age & SMH that:

It emerged today that Mr Turnbull's election as Liberal leader has dramatically cut Kevin Rudd's leadership advantages and restored the Coalition's credentials as economic managers at a time of global financial crisis.

(these would be the polls that still put Labor at 55%)

Turnbull is complex, largely fearless and genuinely dangerous to the Government, not least because he is not truly of the party he leads, just as Rudd was not genuinely of the Labor movement.

Make what you will of that, if you can decipher what he's on about.

Steve Lewis (and agencies) in the Courier Mail give us some amazing intel from Wilson Tuckey:

Tuckey says he is ``delighted'' by the first Newspoll after Mr Turnbull's election last week.

"It's encouraging,'' he said.

"The easiest election to win after you've lost (an election) is the next one. They get harder then.''

(despite no government actually having served one term in living memory!)

Read it and weep. Journalists - like lost souls searching for a headline and a lifeline.

Not one actually tells us what a Turnbull policy is nor, it seems, do they even care?

All sounds great Kathy

I'm not actually doubting Julie Bishop's experience or education, indeed I now know far more about her from your post and it all sounds good.  But a business degree or even running a business means little when it comes to running the complex economy of a government. A business requires far less experience: it's basically a matter of providing a service or product for a price and hopefully making a profit.

It certainly isn't the way a nation's economy is run. Her experience doesn't mean she is any better placed to run the Treasury than Wayne Swann, Peter Costello or Paul Keating. Doesn't mean she could do it better or worse.

You're really just expressing hokey old Liberal fantasy stuff about Labor being unable to run an economy when the best treasurer the countries had for decades, Paul Keating, came straight from school at 15 into Young Labor and then into parliament.

Intelligence is what is really required as, again, treasury officials know more of the day to day mechanisms.

In fact I'm betting, the more I see of Malcolm Turnbull, that he is going to be a disaster for the Liberal party who is investing so much in him leading them from the wilderness. If his quite ridiculous bellowing about Rudd heading off to the epicentre of the biggest financial meltdown since 1929 is the best he can come up with, he's doomed as a politician.

I can't think of anyone with less credibilty than a banker at present, and the Coalition is still wandering around in a fog left by Howard who injected his own prejudices and beliefs into policy.

We are so lucky that the worst Howard and Costello actually did - whilst mainly coasting along on good times - was overheat housing prices with their over-the-top subsidies.

But Mal and Julie Bishop are bound to keep us amused for a while. And one day they may tell us what their policies are!

Just an academic

Michael: "You're really just expressing hokey old Liberal fantasy stuff about Labor being unable to run an economy when the best treasurer the countries had for decades, Paul Keating, came straight from school at 15 into Young Labor and then into parliament."

Has nothing to do with liberal or labor, Michael. You see it as such because you are a labor supporter.

Paul Keating is certainly much different to Wayne Swan. He came from a working class background, his father was a boilermaker. You neglected to mention that Keating got a job as a clerk when he left school. He was also a researcher with a union, and managed a rock band as well. He had real life experience.

Swan, on the other hand, is just an academic with no real life experience:

Swan was born and educated in Nambour, Queensland. He won a Commonwealth scholarship to study public administration at the University of Queensland, becoming a lecturer in the Department of Management at the Queensland Institute of Technology before entering politics.

From 1978 to 1980 Swan was an adviser to the Leader of the Opposition Bill Hayden, and from 1983 to 1984 was an adviser to federal Labor ministers Mick Young and Kim Beazley. He was State Secretary of the Queensland branch of the Australian Labor Party 1991-93.

Michael: " Intelligence is what is really required as, again, treasury officials know more of the day to day mechanisms."

That's true to an extent, Michael. However, having an understanding of these mechanisms is also essential.

Eliot has already pointed out, on another thread, that Kevin Rudd doesn't appear to understand the difference between naked short selling, and covered short selling.

My brother is an academic who is a very intelligent man. He's a professor at a university overseas. He's published much and travelled the world presenting papers. As much as I love him, though, I know that he'd make a damn lousy treasurer.

Who knows, Swan just may turn out to be a fine treasurer. Guess we'll have to wait and see, eh.

Michael: "I can't think of anyone with less credibilty than a banker at present ."

I can ... a politician.

A double whammy for Turnbull, ha!


Michael de Angelos, Swan was an adviser to the Leader of the Opposition Bill Hayden, a loser. Was an adviser to federal Labor minister Kim Beazley, another loser. Hardly inspires confidence.

The colour of money

These effing morons still don’t get it. They talk about a liquidity crisis without even thinking about the fundamentals. This situation has been thirty odd years in the making or from the time the powers that were embraced the ideas of economic irrationalism and globalisation. The conceited half-smartarse Keating rabbited on about a “level playing field” without appreciating disparities, not only in lifestyles and standards of living, but in currency exchange rates. As with America we allowed our manufacturing base to die. Despite assurances that our economy is well placed to ride out the storm, it won’t. At least our governments haven’t gone into deficit budgeting, but with record levels of household debt we are still living beyond our means. America’s foreign debt is now three and a half times its GDP, far greater than it was before the Great Depression, and Bush wants to pump 7 whatevers into the system he hasn’t got. Easy, just do what the Yanks have been doing for years; printing the stuff. Foreign debt? No worries, as the world’s most powerful military nation no one’s going to send the heavies round to collect are they?

Money is an illusion. In its essence it is only a medium and as Marshall McCluhan said (on a different subject of course), the medium becomes the message. Until reality bites; then it becomes apparent that unless a currency is backed by productive capacity it is worthless. Just ask Robert Mugabe, but he’s probably still in denial.

Paul, you’re coming across as a bit non-plussed. Eliot, you’re in the same boat and starting to sound like Alan. That’s a worry; or should be.

Since I've mentioned you, Alan, I will add that I let your thoughtless rubbish go through to the keeper but on this occasion I'll let you you know that to describe a hard working, intelligent and successful politician who went on to become Governor-General as a loser is amongst your worst and that is saying something.

Water off a duck's back of course. The word "troll" comes to mind.

Has Geoff gone to ground?

Richard: Geoff's apparently been leading a hectic life of late, Scott. However, he's agreed to do a piece on Olmert's resignation when time permits.

Sure Kathy, but...

What is Julie Bishop's experience in high finance? Or is Bishop going to be merely a foil against Swan or even just a mouthpiece for Turnbull?

What Treasurer could possibly have really have real experience in managing the budget of a country, as opposed to the pure profit making enterprise of a bank which is devoid of all human sympathies and simply goes for the bottom line - always a higher profit?

Howard, Costello, Keating - none had any experience in high finance yet all had long careers as Treasurer, although the least successful was Howard.

After all, the Treasury officials probably hold more power anyway.

Even a Liberal deserves a fair go.

Michael, what is of concern, to me is the fact that neither Rudd nor Swan has any experience in business or finance.

Bishop, on the other hand, HAS had experience in business:

She graduated from the University of Adelaide with a Bachelor of Laws in 1978, and subsequently practised as a barrister and solicitor at the Adelaide law firm Mangan, Ey & Bishop, where she was a partner. In 1983 she relocated to Perth where she practised as a commercial litigation solicitor at Robinson Cox (now Clayton Utz). She became a partner of Clayton Utz in 1985, and managing partner of the Perth office in 1994. In 1996 she attended Harvard Business School in Boston and completed the Advanced Management Program for Senior Managers.

Ernest: "Some posters have suggested that I back off from Malcolm Turnbull and I wonder why. Does this wealthy Goldman Sachs protege have more rights than the ordinary Australian millionaire?"

No, no more than the wealthy Kevin Rudd.

No one has suggested that you back off, Ern. But, to be fair to Turnbull, he should be given a "fair go", as is the Australian way.

Heavens, he hasn't even been in the job for a week yet!

How true Michael

G'day,Michael, politics is a dirty game and the media plays it up to the hilt.

Without any clout, I argued that we should concentrate on the Government who, after all, has the power to do something (unless you have an opposition Senate).

I also believe that, if the Howard "New Order" was re-elected, the US policies would continue unabated. 

However, whatever party was elected there was certainly  a "checks and balances" Senate which should be an instrument of protecting the rights of the States, no matter how small.

Nevertheless, the Senate has become a weapon of the opposition whoever they may be (if they have a majority) to oppose for the sake of opposition and to demonstate a non-democratic power that the Constitution did not intend.

If the Senate "house of review" functioned as it was intended then its purpose should be to protect the smaller States from being overruled by the larger.

Now, we do not have a real State protection situation. What we have is a political force that has lost its purpose, and is no longer a balance of State entitlements, but is the weapon of an opposition in the lower house who, if they have a majority, can destroy the wishes of the nation, under the guise of protecting their state.

How wonderful it would be if  the Senate voted, not as captive of a political party, but only with the interests of their own State - which, after all, is why they were elected.

We have all suffered from the betrayal of Meg Lees which must have led to the demise of the Democrats

Surely there should be some distinction so that the Senate must vote according to the genuine State views on any legislation which may adversely effect their constituents?

Otherwise, why have the Senate anyway?

 Cheers Ern G.

history repeating

The US, and other world ecconomies, are quite obviously in a period of deflation, as I've argued in previous threads. History shows that when the US government last meddled in the markets in a deflationary period, the Great Depression occurred. Isn't it amazing how short their memories are.

This mess was caused by the US Fed meddling in markets trying to prolong an unsustainable period of growth. If they had not, there would have been a short and painless recession after the dotcom bust. It's a bit like pulling a bandaid off your leg. If you do it fast, it is relatively painless. If you prolong the procedure, it is a lot more painful and protracted over a longer period of time.

There are two solutions to the problems of the world economy right now.

(1) Abolish the US fed and all other central banks worldwide and eliminate all government regulation of the markets (arguably the best option under the current circumstances) to make the coming period as painless as possible.

(2) Do what the US fed and other central banks are doing right now and prolong the pain. As a result of this we will have a return to socialism, similar to the 30's, 40's, and 50's. The benefit of this would be that the Government would resume printing money, which the banks have been printing for the last 40 years.

The upshot of all this is that now is a good time to bury all your money in the backyard, and have a bloody vicious dog guarding it. 

Our independence may be paying off

The independence of the Reserve Bank, created I believe by a Liberal Government, has been a boon to an indication of how our economy is travelling.

Now we have Malcolm Turnbull quarrelling with the Reserve Bank as to what they should do.

It is surely a strange situation when a political party, which endorsed the independence of  the Reserve Bank of Australia, then elects a leader who considers that his intellect is superior to the wisdom of those on the Board.

Would a Malcolm Turnbull government remove the Reserve Bank of Australia for incompetence?

Fiona: See my comment on your previous post, Ernest. You are sailing far too close to the wind.

Freedom must have boundaries

G'day Fiona, I totally agree that there must be limitations to the interpretation of "freedom".

If we consider basic old fashioned democracy we would say that any government we elect must guard our entitlement to the right to know - but is that still an issue in our elections?

So, we pass legislation called Freedom of Information.

Then, conversely we pass the Privacy Act.

Score - 0 all. But the government of the day makes the decision.  That is not  ensuring our democratic right to know. That is the all-powerful government that we have elected - or should I say, the government that the media has told us to elect.

It is my opinion, Fiona, that democracy has become a marketing ploy and the true values of that system has been destroyed by the "powers that be".

If we can consider the news to which we are allowed, at the very least, we are involved in a situation similar to the Hitler invasion of Poland. He too had an orchestrated excuse.

But, I would like to say this.

At this point in time, any elected public figure, male or female, of whatever religion or of wealth, is a democratic target for those who disagree with the results of an election.

Think about it Fiona - does the election of a particular party, which in these days means "left or right" - automatically eliminate the rights of the losing voters?

Let's face it, that's what Howard did - he ruled as he said for his party and why?  Because they gave him the power to do so.

Cheers Ern G.

Really Fiona

G'day Fiona,

The John Howard "New Order" must have been the most anti-freedom government in the history of our nation.

Isn't it a fact that the Howard anti-terrorism legislation provided penalties for those who may bring into disrepute the Queen or the Federal Government of Australia?

If that is so, then those who currently attack the Rudd government of Australia must be under investigation? At least!

Conversely, it should be that anyone who attacks the Liberal opposition or any public identities are free from prosecution?

I come from a period of time when there was a balance of rights and wrongs and democracy meant more than a smart arse lawyer's interpretation.

Some posters have suggested that I back off from Malcolm Turnbull and I wonder why. Does this wealthy Goldman Sachs protege have more rights than the ordinary Australian millionaire?

When in opposition, and when retired and out of politics, Mark Latham was stalked and ridiculed just for being Mark Latham. Why?

With some measure of common sense, I would like to point out the reasons as to why I distrust the media (at any time) regarding the elevation of people who have nothing to add to our nation other than their ability to accumulate personal wealth.

Cheers Ern G.

We'll be saved - just wait and watch

Stuart McCarthy: "If there’s any public capital not flushed down the toilet to prop up business as-usual in the meantime, democratic governments are going to have to break the ideological taboo and act in the public interest by picking a few winners (as opposed to backing the current losers) to kick off the recovery".

Have you considered that "great and all good government" even attempting to pick winners and losers is the problem?

I wouldn’t be totally surprised if even fractional reserve banking comes under threat.

I would. Such great things unfortunately won't happen during my lifetime.

Talk of something like free banking and you may as well talk to yourself. People love the "feeling" based in reality or otherwise that somebody, anybody, is in control. Fractional banking really hit the heights under FDR -a response for more "regulation" (government control) as it happens. This little baby isn't going anywhere, anytime soon. The only real argument (read between the lines) about fractional banking is who gets to control it.

The response to this latest crisis will be the same response its always been during any other crisis. Simply the beginning of a misallocation of resources into the next boom bust cycle. That could well be "alternative energy". In ten years we could well be reading about how Goldman or some such tricked the little old lady into putting her life savings into a windfarm on Guam (that now covers the entire island) - and the lighthouse keeper has just defaulted on the billion dollar electricity charge - and why the accounts didn't pick up on the fact he earns only three hundred dollars weekly.

The interesting thing to watch will be how quickly the punters cotton on to the consequences of the ideological drivel the elites have been selling them during the recent boom years. John Ralston Saul describes this well:

The "punters" never cotton on. If the "punters" were cottoned on they would never be in the situation many find themselves. The scams and the promises never change. They just dress themselves up in new clothing. The "punters" I assure you are only looking and waiting for the "new messiah". That guy that'll constantly save them from themselves and make them all rich and happy in the process. There's a lot of cash in selling dreams...

Not the Messiah, just a very naughty boy (with invisible hand)

Paul, I certainly don't believe in "great and all good government", but when faced with the sort of shocks we have coming down the line the historical evidence suggests that what Churchill called the "least flawed" system of government will most likely fare better than an "invisible hand". You might perceive this as "control", whereas I call it "participation". I guess the main difference between these perspectives is the degree of cynicism.


Paul - that's about right. Many can't even trust their own kin let alone some guy in a suit.

Time for picking winners, not bailing out losers

Paul Morrella: “It may well be a dead cat bounce, short term trends being as they are.”

This slow-moving train wreck is only coming to the end of round two after 12 months - hardly a short-term trend - and it was long anticipated by anyone with even a passing interest in finance markets. If sub-prime wasn’t the trigger there were at least three or four other candidates. The finance industry has been so badly corrupted by a decade or so of blatant, government-condoned gambling (aka “de-regulation”) that they can’t even distinguish between “assets” and “liabilities” any more. I wouldn’t be totally surprised if even fractional reserve banking comes under threat.

"We've seen bad times before and we'll see good times again."

I totally agree. Of course there will be a recovery, but it won't be led by “bankers” trying to defraud each other with billions in bad debt dressed up as tradable "assets". If there’s any public capital not flushed down the toilet to prop up business as-usual in the meantime, democratic governments are going to have to break the ideological taboo and act in the public interest by picking a few winners (as opposed to backing the current losers) to kick off the recovery. The real challenge will be achieving this in the face of declining world energy supplies, record levels of personal debt (Australia is actually worse than the US in that regard), the bow-wave of aspiring “self-funded retiree” baby-boomers (soon to be disaffected “pensioners”) and the various other shocks coming down the line. So this ain't the usual 'cycle'.

The interesting thing to watch will be how quickly the punters cotton on to the consequences of the ideological drivel the elites have been selling them during the recent boom years. John Ralston Saul describes this well:

Ideology, like theatre, is dependent on the willing suspension of disbelief. At the core of every ideology lies the worship of a bright new future, with only failure in the immediate past. But once the suspension goes, willingness converts into suspicion - the suspicion of the betrayed. Our brilliant leaders abruptly appear naive, even ridiculous.

Easy answer

Justin Obodie "who can we trust with our cash"?

Your self.

The decision you make with it, and who you decide to "trust" with it, are down to that same self. Unfortunately most people never do really learn that - at least never fully accept it.

I see the time to settle the horses has come around again

Ernest William"By deregulating financial institutions the Bush Administration - Republican and neo-conservative to the enth - was responsible for the present world crash".

I'd almost be certain you wouldn't know what they "deregulated". Writing that just plays into your world view.

Unless an Administration was planning on doing something about a decade or so, of completely reckless Federal Reserve policy, what is happening would have taken place under all Administrations.

The politics of it is but grist for the political "support a team" mill.

Regulation (now there's an old friend buzz word in troubled times) will help as much as it has in the past and the present. That is it won't make a lick of difference, and future calamity will proceed as usual.

I mean everybody will be chaste - that is for a while. Then of course that babe "above normal returns" rears her seductive self - and as night follows day she will. This particular babe might buy then be working out of the Bahamas, Hong Kong, China or anywhere else for that matter. They all fall for her charms eventually. Where the love is consummated is really very irrelevant. Al

The best example of regulation is the "successful" tax industry - wouldn't find a more regulated "product". Once (talking 1950's days) the top guys in this industry was that little old humble guy with a secretary named Shirl or some such. Armed with nothing more than a red and black pen, and the entire tax law placed in a small folder. Naturally things were just a little to easy, and of course have needed improvement ever since (what a growth industry). Now these days without a "tax strategic specialist" (about 27 and earning the hourly equivalent of small nation) one's a veritable nowhere man.

Tax you gotta love it. Law written on Monday, and the loop is out by Tuesday. These guys are nothing if not prompt. There could be a hit single in there somewhere. Anyhow a lot of guys will now be looking for something to tide them over for the few coming lean years. Government paid gig, "helping write regulation", will be a Godsend. And imagine what it'll do for the CV when the future "regulations consultant" is needed.

Seriously, regulation isn't the thing needed. The thing needed is for people to take responsibility for their decisions. Since that's not going to happen, earning above and beyond in the "facade of protection" industry is a reasonable career move.

Two points:

The law already deals with most things people are worried about. The issue between New York State and Goldman Sachs is a case in point.

Any person could have easily known this particular situation was going to eventuate. The writing has been on the wall for eons. Those that didn't know were either asleep or didn't care. Again we come back to personal responsibility. Something most people want someone else to take care of for them. The problem is that these same people aren't willing to pay the price.

Who do you trust?

I won't be holding my breath either, David.

"Losses due to subprime alone will be as high as $400 to $500 billion and this does not count losses due to near prime, prime mortgages, auto loans, credit cards, commercial real estate, leveraged loans, loans to the corporate system; if added all up losses could end up - in a US recession - as being as high as $1,000 billion or $1 trillion. The financial bloodbath thus has only started and a hard landing of the economy is clearly ahead of us."  Nouriel Roubini.

A  quad-trillion (if you're a Yank) black hole. The entire global GDP is a paltry 70 or so trillion.

The central banks have had to throw in a half trillion to keep things turning over - then how much next week and the week after?

I appears the Fed is doing its best to keep the lid on the derivative market, which is huge (and probably broken); the US taxpayer will have to have very deep pockets to get the clever bastards outa this one.

Ernest; don't forget Bill Clinton in your list of careless bastards. Bill (with a Republican controlled senate) repealed Glass-Steagall (which separated banks and investment houses/brokerages) in November 1999, thus giving the wolves total control of the hen house.

I suspect Glass-Steagall or similar will make a (much-needed) comeback. After all you could never trust a righty with your money; not after all we have witnessed to date.

Shit! - lefties squander our money, righties steal our money, the bloody greens given a chance would probably eat it or make clothes out of it - who can we trust with our cash?

McDud has screwy economic advisors too

Today, his campaign is struggling to answer questions about serious ties between one of his top economic advisers and AIG, whose bailout could cost American taxpayers over $80 billion.

One week ago I posted a commentary called John McSame’s Campaign to Nowhere, about John McCain’s political advisers and their ties to the Bush Administration. In that article, I mentioned that one of his economic advisers, Martin Feldstein, was on the Board of Directors of American International Group, Inc. (AIG):

Marty Feldstein was a leading candidate to replace outgoing Federal Reserve Board Chairman Alan Greenspan in 2005, but is believed to have been passed over because he was a board member of AIG, which restated five years of financial reports by $2.7 billion the same year. AIG paid a $126 million fine to the SEC and a $1.6 billion settlement to the state of New York for soliciting rigged bids for insurance contracts from insurers. (Author's note: On Monday, September 15, AIG's stock dropped another 60% amid serious financial troubles, from a high of over $70 a share to a close today of $4.73) Former chairman of the White House Council of Economic Advisers R. Glenn Hubbard and President Bush's top economic official Lawrence B. Lindsey, both worked as assistants for Feldstein at Harvard.

My source for the McCain/Feldstein connection was a September 2, 2008 opinion piece in the Wall Street Journal written by Feldstein and John B. Taylor, entitled John McCain Has a Tax Plan to Create Jobs which says at the end: “Messrs. Feldstein and Taylor are economic advisers to John McCain and professors of economics at, respectively, Harvard and Stanford.” ..." that article has the question at the bottom that Greenburg asks and many would like to know. I d like to know about the German 500million eu transfer and the UK 2billion transfer the day Lehman went bust. Nice swifty there.

Wow, Paul, guess McClueless (recently dud "Spain is in central America") also has advisors who screw up, this time big time.


The $2 trillion rescue plan

Well, that came along faster than expected: the failure of the $180 / 247 billion rescue plan to reassure the markets is followed by the enigmatic Lear-style* $2 trillion plan - that being the scale of the bad debts in the US housing market that  it is promised will somehow be relieved from the banks.

* "I shall do such things - what they are I yet know not, but they shall be the terrors of the earth". King Lear, Act II.iv

Wall Street (and Sydney) bounced by around 4% on the enigmatic announcement that there will be a rescue, but we don't yet know what to do. (Sorry to be so long commenting on this, but this all happened while I was asleep in London.)

There is speculation that one plan being discussed involves legislation that would force lenders to renegotiate mortgages that homeowners are having difficulty paying, our correspondent says. (BBC)

If everyone who can't afford their mortgage is going to get it reduced to what they can afford, I'll have a million or so off mine, thanks very much. 

I don't know about holding my breath. My guess (and no more than that) is that the markets will start dropping again once everyone's had a chance to consider what this grand plan might be (or after the weekend fails to produce one that anyone believes in). Right now the putative existence of a plan without any substance allows people to fill in their own favourite scheme and bet on that working: once it's crystallised, most of them won't like it. 

I wonder, David

G'day David, it seems strange to me that world affairs are controlled, or at the very least, seriously affected, by the financial and military might of the US.

What would the American Reserve Bank save if the US pulled out of Iraq now?

I know that will not happen because of pride and paranoia but, outside of Halliburton, who is making a profit rebuilding what they have destroyed? And who pays for it?  And for what?

I imagine that many aggressive empires over the centuries were eventually forced to withdraw due to the cost in money and manpower.

My limited knowledge is that the most successful empires were able to exist only by using the manpower and wealth of the nations they occupied - like the British in India and the Romans in Britain.

But America - since its inception - has depended on war, not only for its very existence, but for the slow but deceptive increase in its power and wealth.

Vietnam cost them dearly, Afghanistan is costing them, and Iraq is a disaster.  However, why does the current Republican government give preference to contracts for Halliburton?

As Bill Clinton so famously said; "It's all about the economy, stupid".

However, it seems to me that, in Australia as in America, lack of control releases enormous greed and money begets money.

If the government of a country, of whatever political persuasion, allows unrestricted exploitation of a nation's resources, they are denying the rights and welfare of the people who have elected them. 

Finally, only on perception, I wonder how the welfare of all of the American people would be IF war was not a factor?

Cheers Ern G.

The buy of the century comes around once a week

Stuart McCarthy: "Paul, this is what I make of the most likely "windfall" from half a trillion dollars of "liquidity" thrown at this mess in the last few days."

You've changed the context of my post. You made a statement. I gave a recent example of why that statement wasn't correct. I didn't give an opinion.

inconsequential dead cat bounce by western finance and equity markets along the inexorable slide into oblivion.

It may well be a dead cat bounce, short term trends being as they are. The beginning of a  "slide into oblivion"? Absolute rot.

The only things that change after a recession are the faces. We've seen bad times before and we'll see good times again. Never was a truer market statement ever spoken.

Friends in need are friends indeed

Eliot Ramsey: "Oh, well, that's always just a matter of degree. We're probably fortunate that we have a big spending New Deal socialist president in the White House who was willing to take the bold step of decisively intervening in the market to nationalise some major financial institutions".

Be interesting if Obama does manage to win.

Both, now, ex-chiefs of Fanny, and Lehman Brothers are official Obama economic advisers. When one takes only the best that money can buy...

The ninth defendant

Paul Morrella: "Be interesting if Obama does manage to win. Both, now, ex-chiefs of Fanny, and Lehman Brothers are official Obama economic advisers. When one takes only the best that money can buy..."

But then he could have been advised by Goldman Sachs, the Australian Chairman of which was Malcolm Bligh Turnbull - the adviser to FAI during the fraudulent dealings with HIH.

Elisabeth Sexton (SMH September 17 2008):

THE timing of Malcolm Turnbull's ascent to the Liberal leadership was not of his own choosing, but it gives him 17 months to establish himself before he encounters the distraction of another public role, as the Ninth Defendant.

On February 8, 2010, the NSW Supreme Court will begin hearing a civil damages suit brought by the HIH Insurance liquidator, Tony McGrath. The case will run for at least six months, just as the next federal election campaign is gathering pace.

It will revisit the events of 1998, when Mr Turnbull, as chairman at the investment bank Goldman Sachs Australia, advised the board of FAI Insurances on a takeover bid from HIH.

Mr McGrath, from the insolvency firm McGrathNicol, intends to prove that FAI was worthless when HIH paid $295 million for it.

Mr. Turnbull continually refers to one of Mr. Howard's skewed Commissions as his defence, but this is now a civil action without interference by his Liberal colleagues of the "New Order".

But then, since money is the basis of this issue, and Malcolm said that such a problem would be easily resolved by Goldman Sachs, he may do an Eliot and delay until (God forbid) the Liberals win a Federal election.

With anyone other than a Liberal Party millionaire (in his own right) this matter would have been sufficient to demand his resignation, or at least a stand-down until it was resolved.

Why isn't that the case?

To be settled?

I read somewhere, Ernest, that the case was likely to be settled out of court with the receivers asking for around half a billion from the defendants. Goldman Sachs would foot part of the settlement bill, I assume, which would let  Mr Turnbull off the hook.

Of course these things will drag on, so who knows if it will be settled before the next election. If it is not then Mr T could take a bit of flak. Not something he will want around his neck during an election campaing, that is for sure.

Politicians never step down until they are forced to. No one seems to be interested, least of all in the media in forcing him to do just that.

I doubt you will see Fairfax pursuing too hard. A bit of history there as we know. Perhaps they feel they owe him. Who knows? As for Murdoch. Well I would not hold my breath there. 


G'day Jenny,

Yes, I too remember that being mentioned but, on the midday ABC news.

I believe that in the 20th and now the 21st centuries, a nation is only entitled to that which they can defend.  In our courts of law, a person is only entitled to that which they can defend.

In one it demands military power and in the other financial strength. Would that describe America?

That seems to be the international example of the schoolyard bully and how the lesser must conform or....

Nevertheless, I thank you, Jenny, for confirming what I thought I had heard.

Cheers Ern G.

Ever get that feeling things work in cycles

Stuart McCarthy:  "If anything, it's the beginning of financial socialism".

No, that's been with us since the day dot.

Actually, the savings and loans crisis is probably the closest dated reminder. The Fed Government, interestingly, later sold most "saved" "assets" at a handsome profit. Overall it can be conclusively said that the "greatest public" rip-off became a great public windfall. Relating it to the current situation: Make of it what you will.

Call this a public windfall?

Paul, this is what I make of the most likely "windfall" from half a trillion dollars of "liquidity" thrown at this mess in the last few days: a relatively inconsequential dead cat bounce by western finance and equity markets along the inexorable slide into oblivion. A fairly significant opportunity cost in other public goods whichever way you look at it. And more to come, no doubt.

Doom merchants stocks plummet.

"Australian stocks surged after Wall Street closed in positive territory overnight on talk the US federal government may create an entity that will take over banks' bad debt. The benchmark S&P/ASX200 index had gained 3.46%, or 159.3 points, to 4766.6 in mid-morning trading."

It's the death knell of socialism.

Short-term reaction to financial socialism

Eliot wrote: "It's the death knell of socialism."

Incorrect. It's a short-lived reaction to the socialisation of the finance industry by pumping in hundreds of billions of dollars in public money to prop them up for as long as possible. If anything, it's the beginning of financial socialism.

The end is nigh, though it is light years away

Richard Tonkin: "So I'm asking, for my own sanity, what's the worst-case scenario of this situation?"

There will be a slowdown in the developed world's economies until capital supplies can be freed up drive investment.  The 'panic' results in investors fleeing capital markets in favour of other forms of investment (commodities, precious metals, etc)

So, that's all going to need some restructuring and reform in global investment markets in both the medium to log term.

There may even be some negative GDP data in some European economies resulting from the capital shortage, but less likely in the USA.

There will be an increase in unemployment in the USA, but not to the high levels that have been chronic in Europe.

There'll be a slowing of the Japanese economy.

There'll be a slowing of growth in the emerging economies of China, India and others. But probably not massive relative to their current growth rates(though don't quote me).

There could be some very bad times in Russia politically as the Old Guard's new KGB billionaires start looking for scapegoats for their personal losses, but Russia's economy will find the capital somewhere to keep expanding.

These are just hunches, because the situation is unfolding and complex. But it's not unprecedented either.

But some people have no clue at all about what's happening.

For example, Kevin Rudd, who thinks stating the bleeding obvious about the global reach of the financial crisis represents an "attack" on the reserve bank but who will, in the very next breath allude to the seriousness of the crisis - due to its global reach.

Justin Obodie: "Eliot, can socialists manage a sick economy?"

They cannot even manage a healthy economy.

In their day they wrote off Franklin Delano Roosevelt, for example, as some kind of Fascist whose 'historical role' was to prop up capitalism. Meanwhile, millions starved to death in the Soviet Union.

As Mikhail Sergeyevich Gorbachev realised, finally, it's actually impossible to centrally plan, manage or direct a complex, industrialised economy in a global market.

Especially in a way that encourages innovation, risk taking and flexibility.

The Chinese also realised this. After millions starved there.

That's why the'yve dumped socialism. Eventually, they'll have to dump their fascist dictatorship, too.

Now Bush is a good example

 By deregulating financial institutions the Bush Administration - Republican and neo-conservative to the enth - was responsible for the present world crash.

Deregulating massive money-making banks only encourages their greed, which of course is the God of any form of banking. The sub-prime mortgages were just a false economy ready to collapse.  And the masters of this disaster are probably relying on their millions in Switzerland.

The Great Depression (there's an oxymoron for you) occurred with the collapse of the American market and the government of the time was also Republican - Herbert Hoover.

"After capably serving as Secretary of Commerce under Presidents Harding and Coolidge, Hoover became the Republican Presidential nominee in 1928. He said then: "We in America today are nearer to the final triumph over poverty than ever before in the history of any land." His election seemed to ensure prosperity. Yet within months the stock market crashed, and the Nation spiraled downward into depression."  Wikipedia. 

The Howard "New Order" in Australia did the same thing as Bush (naturally) by trumpeting a period of prosperity,  but on a much smaller scale. However, for the last three years at least, the "Pinnochio" debt laden trap has claimed many victims in Australia and they have lost their homes and the associated problems of family dysfunction.

The Rudd Labor government inherited a foreign debt in excess of $550 billion dollars and a credit card debt of $54 billion dollars. This is claimed by the "New Order" as the result of magnificent economic management.  I call it magnificent deception and a period of extreme wealth to the wealthy.

These wonderful conservative economies have been stumbling along with ever increasing debt - just as the yanks have done.

And all nations have to have a period of down-turn to resolve those cavalier attitudes of the "upper class" and, if we finally recognise it - we are not democratic because that is their marketting tool.

Why wouldn't the wealthy try to avoid an additional tax on wealth?  They do not consider difficult times, caused by their fellow travellers, should give them any pain at all.  Every citizen should shoulder some of the pain if our country is to have another Paul Keating "soft landing"

This disaster is leading to a recession we "did not have to have".

Malcolm Turnbull

IMHO, a corporation government, and its controllers, seek to decide the finances of each and every citizen, not for the improvement of the lifestyles, but to assure their privileged position, and that results in a skewed economy.

The so-called richest country in the world (with streets paved in gold) appears to have been finally exposed (I hope) by its lack of duty of care with the banking greed and the adventures of the Military/Corporate.

There are many opinions one can research regarding the Great Depression, most of which seem to place the blame on the major factor of unrestrained greed. And this was with the US.

It concerns me that the present pitch of the "New Order" Liberals is the so-called economic experience of their new leader, Malcolm Turnbull.

His experience is certainly not in government, local, State or even Federal. However he is ruthless (for what?).

His dealings in financial matters, other than his ability as a lawyer, have been exaggerated when you consider that those skills, under the aegis of the Packer organisation and  the banker Goldman Sachs, were well funded and protected.

This history is portrayed by some of the media as a plus when the world is in economic strife, in large part caused by the exact principles by which he has prospered.

If, as I believe, the world economic turmoil is in large part caused by the greed of a false economy based on lending and borrowing without regulation to a point where the house of cards can no longer exist.

To resolve the economic effect on the people of our nation, we must consider the way that the Bush Administration is trying, albeit not before time, to bail out (let's face it) the badly administered huge financial Institutions.

Fiona: Ernest, are you prepared to bankroll Webdiary and its directors in the event of our being sued for defamation as a result of your continued assertions of wrongdoing by Mr Turnbull? If so, fine - if your pockets are at least as deep as his. If not, please - no more on this matter until it has been resolved in the courts.

By the way, I note that you have a new email address. Can you still access your old one? If so, I sent you an email some weeks ago, and I would appreciate it if you would read it.

Come on, Ern

Come on, Ern,  stop being so one eyed and give Malcolm a go, eh? I am willing to give Rudd a go (I support neither lib nor labor).

At least Malcom Turnbull has extensive experience in the business world. Swan, for example, is an academic with no experience in finance  and business (in fact, no experience in the real world).

And, to clarify, I am not having a dig at Swan because he is an academic, rather his economic credentials. Are they sufficient to guide Australia through this world wide economic turmoil that is engulfing us all?

Fiona - I apologise

G'day Fiona,

How comfortable do I feel with your explanation of my extreme opinions.

Somewhere there is an understanding that I greatly appreciate.

It is not so strange that my wife asked me to direct my questions to you.

Truly Fiona, I like to vent my spleen on matters that my years of experience  have indicated to me that we should never repeat. But who am I?

Whatever happens in this free forum, I deeply appreciate your understanding of my personal opinions.

Without being a smart arse, I may continue to put forward my biases or opinions and, if they are not printed, so be it.

I am sure, Fiona, that you and the voluntary staff understand the freedom of speech that people in my level of the scheme of things is surely the basic wealth of Australia.

If for no other reason, I think that I have earned my right to comment by my service to my country which most politicians have never done.

Thank you Fiona - I hope to continue to contribute if only to annoy my youthful opponents but without the same freedom of expression.

Cheers Ern G.

Fiona: Fair enough and thank you, Ern, but please remember that for every freedom there is a concomitant responsibility.

Today's big rescue unravelling already

US$247 billion in a rescue package is probably the real money in the old phrase "$80billion here, $50billion there, and soon you'll be talking real money ..."

And what happened? The European markets bounced up 1.5% for about four hours - and are now slowly sinking back toward yesterday's close. So, how much for tomorrow's package? A trillion? 

Addendum: Wall Street managed to compress its own 200pt rise and 200pt fall into just two hours. 

How one lot responded to some awful news

As I recall the story: The day after news of the Wall St crash of 1929 reached Sydney, that city's market went into a turmoil and panic presaging  its own collapse. News of the financial mayhem spread rapidly through the city.

At the height of it all, the great comedian Roy Rene ('Mo') walked out onto the stage of the Palladium, down there in the Sydney Haymarket, for his afternoon matinee. The packed house was unusually quiet and sombre. Mo silently looked out into the gloom beyond the footlights, his face a complete blank. He appeared stunned. The audience stared back.

After quite a while of this, Mo smiled a little, and raised an eyebrow. There was a bit of a twitter in the audience. So Mo gave a bit of a wry chuckle. The audience started a bit of a chuckle of its own. So Mo started gently laughing. So the house started laughing. Mo laughed louder and longer. So did the house.

Soon the whole place was an uproar and bedlam of laughter. Mo pulled out a handkerchief to deal with the tears streaming out of his eyes. The audience went into hysterics.

Then Mo gradually quietened down. So did the house.

That audience had just experienced what was probably the greatest single stand-up comic routine in the entire history of theatre. And all without a single word being said about anything; about Black Thursday, Black Tuesday or any other black day of the whole black week. There was appropriately thunderous applause.

For his encore, Mo moved into the first of his scheduled routines for the day.

What a wonderful post Ian

G'day Ian, "Mo Macky", is that correct Ian?

You bring back a period of turmoil and fear when the need of people like Roy Rene raised the spirits of my parents, and they never forgot it.

My memory of Mo was mainly on the radio and, in my young mind, he was the most radical and brilliant comedian of his time - and I still feel that way.

Thank you for such a wonderful anecdote.

"Come in thpenther [sic} and bring ya blow flies with ya".

They threw away the mould, but he lives as long as our generation does.

Cheers Ern G.

Ian M (Ed): Actually Ern, it was "Mo MacCaughie" pronounced in his inimitable voice "Moey MacCackie". The American comedian Jack Benny on a visit to Sydney went to see him in action, and was blown away. "His timing is unbelievable!" was Benny's reaction.

Just follow the bouncing ball

Share prices express a ratio: the number of sellers vs the number of buyers, and that can easily change. Thus the old adage for the falling market: you haven't lost a cent until you sell.

Likewise, investors who rushed out early are now looking to make a killing by rushing back in while markets are down. See the latest Reuters report.

Don't blink, or you'll miss the chance to make a heap.

To quote the presently unfashionable (but for how much longer?) JM Keynes:

There is no clear evidence from (recent) experience that the investment policy which is socially advantageous coincides with that which is most profitable.

Speculators may do no harm as bubbles on a steady stream of enterprise. But the position is serious when enterprise becomes a bubble on a whirlpool of speculation. When the capital development of a country becomes a by-product of the activities of a casino, the job is likely to be ill done.

The sharemarket puts a transient value on shares, which may or may not reflect the longer term value of the companies behind them. One reason, I suppose, why Warren Buffett famously pays little attention to share prices. At times like these, when one investor's loss becomes so easily another's gain, my instinct is to stay right out of it. The share market moves in anticipation of share market movements.

Call it if and what you like. Beside it, the eerie behaviour of subatomic particles according to quantum physics (think of an electron as being able to be in two places at once) is the essence both of logic and granitic solidity.

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