On their knees

If you want to understand how and why the Australian banks can flip the bird at the nation with impunity, you need look no further than the pathetic response of the senior commentators of the fourth estate. Their combined lack of imagination, curiosity, intellect and, above all, cohones, is the banks impunity.

Responses vary from capitulation to weak-minded but all share the same damning characteristic: the prism through which the issue is viewed is identical, and it is the same one deployed by the government and the banks themselves. That is, banks' cost of funds is rising, they may be gouging, there's nothing we can do about it.

The opposition has flirted with an alternative world-view but has also fallen dramatically short.

You would never know that the Australian parliament has the bit between its teeth, nor that the banks are messing with housing, the greatest populist economic issue by a country mile. How about some new ideas on where an inquiry should go?

Here's one for starters. Forget interest rates and start talking about regulating offshore bank borrowing. Create a new agency to insure and control the wholesale debt. A Federal Bond Insurance Corporation. Like the US FDIC, it will charge the banks premiums for insuring their offshore debt. The premiums go into a pool that backs the debt. The premiums can be raised or lowered as a macro-prudential tool and run by the RBA and/or APRA.

It is a complete political sell because it attacks the banks at their weakest point and where the government bailed them out. It addresses the issue of unilateral rate setting at its cause. It addresses the great weeping sore that is moral hazard. It makes junior banks more competitive. It ensures the Budget is disconnected from the heart of darkness that is global credit markets and mitigates a recurrence of the 1890s depression. It also means banks wholesale costs are more stable and transparent and can't be used to blackmail the country.

This is just one idea dreamed up in this blogger's kitchen. Where are the interviews with bank experts exploring other possibilities? How about someone explore the technicalities of reversing the STG/WBC and CBA/BNW mergers? Why do the commentators always seek to shut down a debate rather than open it up? What on earth is the point of commentary if it's only objective is to reaffirm the consensus?

As some infinitessimal gesture toward an improved conversation, this blog offers a key passage from The Great Crash of 2008 below, co-authored with Ross Garnaut. This chapter was mine:
Extract From 'Clever Money'