There was no "fat finger" 16 billion trade that led to Wall Street's largest intraday plunge

The story that Wall Street's biggest intraday plunge in history was caused by a trader accidentally entering 16 billion rather than 16 million for the quantity of a sell order is nonsense. A check of the New York Stock Exchange's technical specifications reveals that the maximum quantity for trade orders is 6.5 million shares.

We've learnt little since the 1930's

The common argument used to reassure us that the current global downturn won't be as severe as the Great Depression is that the actions taken by governments around the world will change the current course of the global economy. The present thinking appears to be that financial systems and our understanding of them have significantly progressed since the 1930's. While they have certainly changed and are more complex than ever before, one can only conclude from a quick look back at recent history that it is wishful thinking to suggest that we're any better equipped to tackle the fundamental problems that financial markets have always faced.

The inescapable reality that lawmakers are less than keen to explain to the general public is that this financial disaster came about because of a debt-fuelled asset bubble in the US housing market and while it was years in the making, they failed to see it coming or take any action to avert the market collapse.

The popular story that this all started with unscrupulous mortgage brokers who preyed on witless borrowers is baloney, just like most of the other rubbish that journalists write in our mainstream newspapers every day. They get rewarded for sales, not truth or accuracy. The cold hard truth is that America's debt binge began with the borrowing of money from China that was raised through its big trade surpluses. The US government, for political reasons, was all too keen for home buyers to live beyond their means with policies that encouraged irresponsible lending.

If our financial systems and management of them were that far superior to the 1930's, then the bubble and mountain of private debt—far greater as a percentage of GDP than it was back then—wouldn't have grown so large and burst. Once a bubble bursts, the damage has been done. It can't be reversed by re-inflating the values of assets that were purchased for more than they were truly worth.

Labor's runaway debt train raises the spectre of structural debt

The ideological transformations that our Prime Minister has undergone would put the Shmoo to shame. He once described himself as an “an old-fashioned Christian socialist.” During his 2007 federal election campaign, eager to shake off their record of atrocious waste of taxpayers' money, the ALP then ran a television commercial in which he promoted himself as an economic conservative:

A number of people have described me as an economic conservative. When it comes to public finance, it's a badge I wear with pride.

The commercial can still be watched on Labor's YouTube channel.

The contrast with his current policies is extraordinary. This is the same man that just jacked up the nation's legal credit limit from $75 billion to $200 billion and burnt through $50 billion in just six months.

Rudd's out of control spending is far from unexpected. Without fail, every consecutive federal Labor government has left the nation in deeper debt than the previous one. Not once have they ever repaid the Commonwealth's debt.

What is Kevin Rudd's justification for his wild spending spree? Keynesian economic theory. The story he gives—wrongly—is that capitalism has failed, and to save the economy, the government must spend as much money as it can in a short time frame using borrowed money. Unfortunately, Keynesian economic theory is rather theoretical. The empirical results of studies into the effectiveness of deficit financed government spending are less impressive than the theoretical evidence.

At the heart of the economic problems that began in the US is a mountain of debt which led to a subsequent collapse in confidence. Kevin Rudd is trying to fix the problems with more debt. It's just like an alcoholic trying to cure himself by drinking spirits.

Rudd should expect no less for his personal attacks in Parliament

Kevin Rudd shouldn't shed any crocodile tears because of Malcolm Turnbull's article in The Australian slamming the Prime Minister's absurd ideological treatise on neoliberalism, given the number of denigratory remarks that Turnbull and the Liberal Party in general have tolerated from both him and Treasurer Wayne Swan in Parliament. Ever since Turnbull became Leader of the Opposition they have attacked him for his wealth and past career in the finance industry at every available opportunity.

The remarks play to voters' prejudices and not only were they totally uncalled for, they were simply wrong. The global financial crisis was not caused by greedy merchant bankers and neoliberalism. China ran up huge trade surpluses that were lent to the US and fuelled an asset bubble. Also, the US government intervened in the mortgage market, further inflating housing prices until the housing bubble burst.

Here is one appalling attack he made on February 5, 2009, in the House of Representatives, where he insults merchant bankers and outrageously suggests that Turnbull should apologise for the global financial crisis because of his profession:

Mr RUDD —I know those opposite do not wish to actually debate that which is real here, which is: how do you deal with providing the stimulus which the Australian economy needs because of the global economic crisis? We have a program put forward. It is costed. The assumptions have been backed by the Treasury, and we stand by those because they represent for us a credible strategy to see Australia through this crisis.

The alternative is not just sitting on the fence, not just carping from the sidelines, but an avalanche of politically opportunistic negativity from those opposite. But here is the ultimate irony for those opposite. There they are, representing the forces of neoliberalism around the world. There they are representing the forces of unrestrained greed. There they are, representing the forces of unrestrained markets, representing the forces also represented by unprincipled merchant bankers operating with under-regulated markets—their entire ideology, which has brought this crisis about—and yet they are unprepared to lift a political finger to support this government’s efforts to deal with the consequences of that crisis. This is the ultimate irony, the ultimate hypocrisy of those opposite: the unrestrained greed, unprincipled merchant bankers, under-regulated financial markets—at the absolute core of neoliberalism—causing this crisis worldwide, and there they stand back, smugly, seeking to take political advantage of this government’s attempts to deal with the consequences of that crisis for working people. Those opposite have contested whether in fact they are really neoliberals. Remember, as the Leader of the Liberal Party has said in response to this debate on unregulated financial markets: ‘Let us simply let the market run its course.’

Mr Hockey —Mr Speaker, I raise a point of order. I would just ask the Leader of the Labor Party to refer to the Leader of the Opposition by his proper title, please.

The SPEAKER —Order! Members should be referred to by their parliamentary titles.

Mr RUDD —The Leader of the Opposition has said on multiple occasions, ‘Let the market run its course.’ That is the very heart of the neoliberal agenda which has brought about this mayhem on markets worldwide, with impacts on working people, who now pay the price through the loss of jobs right across the world and in our country as well. The Leader of the Opposition reinforced that in the debate in the parliament on Tuesday when he began citing as his new authority on fiscal policy Professor Taylor from Stanford University in the United States, who is himself one of the archdeacons of neoliberalism. Remember what Professor Taylor said? He always asks himself each morning: ‘What would Milton do next?’—that is, what would Milton Friedman do next? And then you have not just these statements of ideology but also the action itself of ideology, which is to block this government’s efforts in the Senate to actually deal with the stimulus needs necessary to repair growth, growth which has been undermined by neoliberal wanton behaviour around the world which has brought this crisis about in the first place.

So there you have this extraordinary contradiction—their ideology wreaking havoc on the world economy and them refusing to support any course of action to deal with the consequences of their ideology’s spectacular failure. How about, I say to the Leader of the Opposition, you just stand up one day and say, ‘Maybe this neoliberalism, maybe this market fundamentalism—maybe we just got it wrong.’ How about a word of apology about all of those investment bankers around the world who creamed it, who scored tens and hundreds of millions of dollars out of this? How about just a word of apology which said you might have got it wrong? And how about a word of action to support a government’s efforts to clean up the wreckage after you? That is the moral challenge here, a moral challenge which has been failed by the Liberal Party corporately and by the Leader of the Opposition personally.

Wayne Swan is probably the worst in Parliament for playing the politics of envy:

Mr SWAN —I was making the point that the Liberal and National parties in this House are simply out of touch with the everyday lives of average Australians. The shadow Treasurer said only last week that Australians have never been richer. That is what he said only last week. Despite the fact that the stock market has halved in value in recent times, his view is that the champagne is still flowing. Of course, when you have the opposition led by a merchant banker and lawyer for merchant bankers, it is no wonder that they are so far out of touch.

Automated layoff tracker

Many layoff trackers have appeared on the Internet, but they all have the same shortcoming: people have to regularly update the page using information obtained through research or voluntarily submitted by those browsing their website. Here is a layoff tracker that is different.

With the aid of Google News, you can keep up to date with the mass layoffs occurring around the globe with a feed reader. News of the latest job cuts can be obtained by entering the following search criteria in Google News:

(cut OR layoff OR shed OR axe OR slash OR sack) AND job

This search can be accessed immediately at the following URL, which can be bookmarked for convenience:

http://www.google.com.au/news?pz=1&ned=au&hl=en-GB&q=%28cut+OR+layoff+OR+shed+OR+axe+OR+slash+OR+sack%29+AND+job

To receive a news feed of this search, enter the following URL into your RSS feed reader:

http://news.google.com.au/news?pz=1&ned=au&hl=en-GB&q=%28cut+OR+layoff+OR+shed+OR+axe+OR+slash+OR+sack%29+AND+job&output=rss

Prime Minister gets a hard lesson on the house of review

The initial defeat of the Rudd Labor government's massive economic stimulus package in the Senate would have taken many by surprise. The Prime Minister thought none of the crossbench senators would dare block the bill if he dangled a $950 cheque in front of millions of Australians. After the government refused to support Senator Nick Xenophon's amendments for economic and environmental assistance to the Murray-Darling Basin, he joined with the Coalition to block the bill. The bill was re-introduced into the House of Representatives and finally passed by both houses after the government negotiated a compromise with Xenophon.

As with other poor legislation that has been thrown out by the Senate, Rudd minimises the embarrassment by pinning the blame solely on the Coalition. The fact is that with the current composition of the Senate, the Coalition needs at least one other Senator to vote against a bill for it to be defeated.

Rudd's attitude, or at least the conception that he is trying to impart on voters, is that the passage of a bill through the Senate is just a formality, as is clearly evident by the figure of speech he used when he told Opposition Leader Malcolm Turnbull to "get out of the road" after he announced that he would not support the stimulus package. The reality is that when a bill is amended or rejected by the Senate, it is serving its intended purpose. It is a house of review and provides checks and balances that form a critical part of our democracy.

The role of the Senate in Australian democracy

The Australian Parliament is based on a British Westminster system, but the Senate was inspired by the Senate of Congress in the United States, which is a federation of colonies just like Australia. The US model of the upper chamber was chosen because it provides equal representation of all states regardless of population. Thus, it protects smaller states such as Tasmania and South Australia from dominance by New South Wales and Victoria. Presently, there are 12 senators for each state and 2 for the Australian Capital Territory and Northern Territory.

The Senate also plays a crucial role in providing a more inclusive representation of a broad range of political views because members are elected via proportional representation. Under this system of voting, a candidate is elected if the number of votes they receive meets a minimum quota, which is calculated by dividing the number of formal votes by one more than the number of seats being contested and then adding one to this result. Candidates receiving a number of votes exceeding the quota have their surplus votes distributed to other candidates based on their electors' preferences. The process is repeated for the remaining candidates using the transferred votes. If unallocated seats remain after this process, then the candidate with the least number of votes is eliminated and their votes are transferred to the other candidates based on preferences. The number of seats won by a political party is proportional to their share of the vote and as a consequence small parties such as the Australian Greens and Family First are able to win seats in the Senate.

Government's filibustering makes a mockery out of the Senate

If the government appreciated the gravity of the economic crisis and enormity of the stimulus package that will be put to a vote on Thursday night, it certainly didn't show with their lengthy and repetitious waffling on matters that were either irrelevant or weren't critical enough to justify the attention they received. Here is just one of the answers that Labor Senator Nick Sherry gave with $42 billion of taxpayers' money hanging in the balance:

Senator ABETZ (Tasmania) (6:10 PM) —At what time on Sunday did the Treasurer finally sign off on this document?

Senator SHERRY (Tasmania) (Minister for Superannuation and Corporate Law) (6:10 PM) —I am not really sure of that level of detail, but I will see if we can find out what time, where he was, what pen he signed off with, what colour it was—black or blue—and how much sleep he had the night before, which I suspect was not much. There may be some relevance to the level of detail we are getting to, but it has not become immediately apparent to me. It reminds me of when I asked the former Treasurer, Mr Costello, about the check-in and checkout times of the GST committee, when I was in opposition, in order to try and determine who was working on the GST package. It was a high-security zone down in Treasury and I wanted to know who was going in and out at what time. The records existed because of the security situation. There was an electronic check-in and checkout. I have to say that the former Treasurer, Mr Costello, was pretty blunt in his refusal to provide that level of information. I really think we are getting to that stage now. But I will put a request in to the Treasurer’s office about the approximate time, within a few minutes, that he signed off on it.

While the government denies it, they were deliberately stalling meaningful debate to delay a vote on the bill while they engaged in backroom negotiations with Independent Senator Nick Xenophon and the Greens.

Family First's Steve Fielding was the one crossbench senator who was not involved in the negotiations. The fate of the stimulus package will be decided by him if the Greens and Xenophon strike a deal. Senator Fielding was unable to engage the filibustering government senators, leading him close to tears in this emotional outburst:

A bit of economics here—I will go back to day one. What was happening on day 1? The Reserve Bank was going to make a significant announcement, but you guys wanted to hog the spotlight. The economy runs on confidence. You did not even allow the Reserve Bank’s downward adjustment of the interest rate to affect confidence in the marketplace. You wanted to hog it. You should have let that run its course and allowed confidence to build into the economy and then maybe come out with a plan. You did not allow the positive cycle of monetary policy to work itself out. No, no, no. You had to hog it. You had to beat your chests and say, ‘Hey, we’re in control of interest rates.’ Frankly, you should have let that run.

Then there was the second thing you did. You came into this place and basically told us, ‘Pass it, no questions asked.’ Don’t kid yourselves. Do not go to the Australian public and say you agreed to an inquiry. You were deadset against it. You have misread the Australian people. We know we need a stimulus package, but are you sure as all heck that your arrogance is 100 per cent right? That is what you said on day 1: ‘Don’t worry about it; just pass it.’ That was step 2—another mistake.

Step 3: these negotiations have been lip-service. You are tap-dancing around here this afternoon. You have put it off to some convenient time when there are no news stories. Stop playing politics. This concerns Australian people, their families and their lives. I am deadset serious about this. This is just a joke. I may not be the best negotiator. I am just a kid from Reservoir, but, sure as all heck, I know when someone is stuffing around. Get serious. Do not treat the Australian public like you treat the Senate.

US trashes global economy, then moves towards protectionism

One has to wonder if US President Barack Obama is plotting the ruin of the global economy. The United States is the world's largest exporter of recessions, but that hasn't discouraged Barack Obama from pursuing policies that tip the playing field in favour of American goods. His economic stimulus package, which is yet to be passed by Congress, includes provisions that require public works projects funded under the package to only use American made steel and iron. In response to international protests, the Senate has added an amendment that allows for exceptions in cases where the provisions violate America's commitment to international trade agreements. The Senate rejected an amendment from Republican Senator John McCain to have the protectionist provisions removed from the package altogether.

Obama couldn't have chosen a worse time to move towards trade protectionism. The International Monetary Fund and World Trade Organisation have warned that the so-called "Buy American" provisions could ignite a trade war. Last year, Australia exported $484 million worth of steel to the US.

The development has Caterpillar, which just laid off 20,000 employees, very worried. Jim Dugan, spokesman for Caterpillar, said to Indianapolis Star:

Our position is that, while 'Buy American' may sound good, in fact we're very concerned that if this stimulus legislation contains the 'Buy American' provision, other nations and regions of the world would follow our lead and pass similar provisions.

Suddenly, we could find ourselves with an old-fashioned trade dispute similar to the 1930s, and soon global trade could grind to a halt. We are very, very concerned that this 'Buy American' provision could end up leading to a similar set of circumstances that would be detrimental to Caterpillar, and more importantly, to the U.S. economy and the global economy.

Why has Obama chosen to head down the path of protectionism, despite the risks it poses to the US economy as well as international trade? He owes a debt to the trade unions that invested millions in their campaign to have him elected. The American Federation of Labor and Congress of Industrial Organizations (AFL-CIO) budgeted US$53.4 million ($80 million) for their campaign efforts, while its affiliated unions spent US$150 million ($224 million). President of the AFL-CIO, John Sweeney, described Obama as "a champion for working families". It is about time that John Sweeney and Prime Minister Kevin Rudd replaced the words "working families" with "union members".

Senator Cormann on the Rudd Labor government's $42 Billion ‘Stimulus’ Package

Below is an excellent speech delivered by Mathias Cormann, Senator for Western Australia, on February 5, 2009. Notice how sensitive Senator Kerry O’Brien was to some of his remarks.

Senator Cormann makes a critical but very simple point that successive Labor governments have failed to understand: governments cannot inject new money into an economy. He also mentions the disgraceful nonparticipation of government Senators in the debate on the stimulus package, and the challenges posed by President Obama's shift towards protectionism.

Senator CORMANN (Western Australia) (4:17 PM) —These are serious times, of course, and serious times require serious action, not just any action but serious action. I know that politicians in the face of a crisis want to do something, they want to be seen to be doing something, but just doing ‘something’, just to be seen to be doing ‘something’, is not enough. Serious times require serious consideration of what is the best way forward for Australia. It requires serious engagement between government and opposition, not a government that comes in here and says: ‘Take it or leave it. We want to spend $42 billion of taxpayers’ money. Just roll over and within 36 hours we want to sign off on it.’ That is sheer arrogance. It is reckless and irresponsible and for the government to even expect that we would go along with it is just breathtaking. We have the responsibility to give serious consideration to this legislation to ensure that what we do here in Canberra does not make things worse across Australia.

Yes, we are facing a serious and significant economic challenge, but this package is not the answer. This is a reckless package. It is a misguided, ill-thought-out package. It is a package put out by a government in panic mode. Faced with a global economic downturn, the government has pushed the panic button instead of coming up with some real solutions. Faced with a global economic downturn, Labor has reverted to type—spend, spend, spend; tax, tax, tax; borrow, borrow, borrow—like Senator Cash has just said. They are spending like drunken sailors. ‘Let’s throw some more money at the wall and see what happens.’

This latest Labor government continues, of course, in the bad tradition of previous Labor administrations. Labor has a history of mismanaging our economy. Under Paul Keating it was the ‘recession we had to have’ and a $96 billion deficit. Today under Prime Minister Rudd it is a deficit we have to have—and a $111 billion deficit at that. And let us not forget the socialism we had to have under Gough Whitlam, or the bank nationalisation we had to have under Ben Chifley. What else are we going to have? Are we going to put the economic potential of this great nation of ours at risk under future Labor administrations? At the end of the day, every time Labor has been in charge of the economy it has ended up in tears, with the Australian people having to foot the bill.

If the government happens to be successful in getting this package through, this will also end up in tears and it will be the Australian people yet again who will have to foot the bill. This $42 billion package does nothing to fix the problems we are facing. This package will actually make things worse. This package is reckless, it is ineffective and it is the wrong way to go. How did the government want the opposition to deal with this? They wanted us to rubber-stamp $42 billion in additional spending. They wanted this parliament, the parliament representing the people of Australia, to approve $42 billion in spending in less than 36 hours—more than one billion dollars per hour of scrutiny. To expect us to go along with this is just scandalous.

The Leader of the Government in the Senate was having a go at the opposition in question time yesterday—he did it again today and he did it this morning as he was introducing this legislation—because we were not prepared to give up our job of holding the government to account. I made the odd interjection yesterday in question time and on one interjection I was pulled up by the President for calling the Leader of the Government in the Senate, Senator Evans, a hypocrite, and I withdrew—

The ACTING DEPUTY PRESIDENT (Senator Forshaw)—Order! Senator Cormann, I do not think it is appropriate for you, under the guise of referring to a ruling that was made yesterday, to repeat that in the manner you have and I ask you to refrain from so doing.

Senator CORMANN —I would like to seek a formal ruling on that, because I have not actually reflected on Senator Evans in any way. What I want to do and what I intended to do is explain why I think the comments by the Leader of the Government in the Senate in question time yesterday and again this morning were hypocritical. I had a private conversation with the President of the Senate yesterday and he advised me very clearly on what I was able to do and not able to do, but if your ruling is different from what the President of the Senate advised me yesterday privately then I will take your guidance.

The ACTING DEPUTY PRESIDENT —I am happy to seek the guidance of the President. What I did was draw your attention to what I believe was where you were straying into unparliamentary remarks. It is not appropriate, nor is it in order—in fact, I understand it is a breach of the standing orders—to repeat, by way of quotation, remarks which have already been called unparliamentary. I would ask you to return to your speech on the matter before the chamber.

Senator CORMANN —Let me explain why I think the comments made by the Leader of the Government in the Senate in question time yesterday and again this morning after introducing these bills into the Senate, having a go at us for insisting on some appropriate levels of scrutiny, were hypocritical. In doing so I quote from a speech that Senator Evans gave to the Subiaco branch of the Australian Labor Party, at the Irish Club in Subiaco on 28 June 2007—less than two years ago—at 6.30 pm:

Labor recognises the role and value of an empowered Senate. Our support for the Senate has grown as it has developed into an effective political institution.

Now, listen to this:

Labor—in government or opposition—supports the Senate as a strong house of review, scrutiny and accountability. The fact is that the Australian parliament constructed better legislation when governments had to negotiate and argue their case in the Senate. We got better legislation when bills were thoroughly scrutinised by committees. The public had their input and governments were forced to listen and respond.

That is why I think that the comments that the leader of the government made in the Senate yesterday and again today are hypocritical.

We are talking about spending $42 billion of taxpayers’ money. We are talking about a package that the Australian has described as ‘Rudd goes for broke’. Let us reflect on that just for a moment. ‘Rudd goes for broke’, according to the Australian, refers to none other than the Prime Minister of the Commonwealth of Australia. When the Prime Minister goes for broke, the whole of Australia goes for broke. When the Prime Minister goes for broke, he forces Australians to go for broke. Australians have seen too many Labor prime ministers going for broke before. I put it to you that Australians do not want Australia to go for broke. Australians want a government that manages the economy carefully, skilfully and effectively. Australians want a government committed to sound and sensible economic management.

It is important to remember that governments cannot actually inject new money into the economy. Whatever the current government may believe, this is a very important reality. I do not think that this administration has quite understood it. Governments cannot inject new money into the economy. All that governments can do is redistribute money they have taken out of the economy by taxing individual Australians or businesses of today and tomorrow. They are forcing future generations of Australians to pay more in taxes to repay a significant borrowing of up to $111 billion or $200 billion, according to the package that this government is going to impose on future generations.

Would this $42 billion generate economic activity? Of course it would—$42 billion is a lot of money—but what sort of economic activity? All that the $42 billion package would do, by throwing more money at the wall, is create artificial demand—and, not only that, it will create artificial supply. You will have all those people out there with a ute in the back of their garage offering insulation. Whether they currently specialise in it or are responding to a genuine demand does not matter; the government is now creating artificial supply and artificial demand that does not correlate to genuine demand. What happens when the money runs out? Guess what—even $42 billion runs out one day. As soon as that $42 billion runs out, you will have all those people used to this government’s largesse coming through responding to a demand that is not real demand and responding to a demand that was created by government intervention.

What will happen to unemployment? The government will say, ‘All those people will be unemployed. Let’s put some more money out there, let’s create some more artificial demand and let’s create some more artificial supply,’ rather than let the market decide what it is that individual Australians want or need. Here we have a government who think: ‘We’ll take some money from these taxpayers over here and we’ll decide how you should spend it; we’ll decide how it is best allocated. Whether you need it or whether you want it, it doesn’t matter.’

Governments are not better at distributing resources in a more productive way than individuals. The arrogance of the government in the way they want to push this through the Senate is breathtaking. Labor wanted us to rubber-stamp this within 36 hours, without scrutiny, without asking too many questions. Have the government given us any reason to have confidence in their capacity to manage the economy? Have they given us any reason over the last 14 months to be prepared to sign a blank cheque?

Let us reflect on what has happened over the last 14 months. Before the last election we had the then Leader of the Opposition deceiving the Australian people into believing that he is an economic conservative, when now all he is is good old-fashioned Comrade Kevin. We had the inflation genie ‘being out of the bottle’. They were talking up inflation and talking up interest rates for political purposes, even though that was not in the best interests of the Australian people and even though that was not in the best interests of the Australian economy. What has happened to the inflation genie? Have we heard about the inflation genie in recent months? It has gone, hasn’t it? Yes, it has.

Then we have the budget. In the lead-up to the budget, all the rhetoric was we had to cut spending and it was going to be a tough budget. What happened? The government increased spending by $15 billion. They increased taxes by $20 billion. That was the only way that they were able to keep any sort of surplus at budget time: increasing taxes by $20 billion. When Labor came into government just over a year ago, they took over a $22 billion surplus. Now we are talking about temporary deficits. The reality is this: deficits under Labor are never temporary; they never are. Labor have got a plan to get us into deficit; they do not have a plan to get us out of deficit. We have the bank guarantee fiasco, and I do not even have to go into the detail of that as I am sure that the Senate well remembers the fiasco of the unlimited bank guarantee. Take the $10.4 billion cash splash. What has that done?

While all this has been going on, we have got the government telling us this is the worst economic crisis since the Great Depression. That is what has been said in this chamber again over the last couple of days and that is what I have heard Labor ministers, including the Prime Minister, say in recent weeks. If it is the greatest economic crisis since the Great Depression, why aren’t they having a more serious look at the impact of their proposed Carbon Pollution Reduction Scheme? Why don’t they even model the impact on the economy and the impact on jobs of the Carbon Pollution Reduction Scheme, an additional tax on carbon in the context of the global financial crisis? Treasury admitted that they have not done that. They have not done their job. From Paul Howse of the Australian Workers Union to Dr Brian Fisher, who has done some modelling for the Senate Select Committee on Fuel and Energy, a whole range of responsible and good people are calling on the government to do the responsible thing and conduct that modelling. But, no, they say, ‘Who cares? It’s not necessary. We’ve done modelling even though we haven’t looked at that.’ It cannot be so bad then if in the government’s view they do not think it is necessary to model the impact of the global financial crisis on their Carbon Pollution Reduction Scheme. It cannot be so bad in your mind, can it? I do not really understand where the government are coming from. While I am thinking of that, and while we are talking about the Carbon Pollution Reduction Scheme, I note that in the United States one of the things that President Obama—and Kevin Rudd is keen to be associated with the new momentum of President Obama—is doing is actually becoming more protectionist. Have you heard about this? President Obama is introducing some more protectionist policies in the United States of America to actually—

Senator O’Brien interjecting—

Senator CORMANN —Yes, I know; you spoke out against it.

The ACTING DEPUTY PRESIDENT (Senator Forshaw)—Order! Senators! Senator O’Brien, you will endeavour to refrain from interjecting. Senator Cormann, you will address your remarks through the chair. Senator Fierravanti-Wells, you will not speak while I am addressing the chamber.

Senator CORMANN —Thank you, Mr Acting Deputy President. This is actually a very important point. This is a quite critical point for jobs, particularly in the steel industry. President Obama is seeking to support the steel industry in the United States at the expense of the steel industry here in Australia by introducing protectionist policies in the United States. At the same time this government is looking at implementing a Carbon Pollution Reduction Scheme which is going to impose additional costs on our exporters and which is going to make it more attractive for importers and which is going to make it more difficult for Australian manufacturers to export overseas. How does all of that fit together? How can this government think that it is not economically responsible to do some proper, thorough Treasury modelling into the economic impact of its proposed CPRS, particularly in the context of a changed world environment and in the context of some of the things that are happening overseas, particularly in the United States of America?

We have got this $42 billion cash splash. What is this going to do? It is going to end up with us having $111 billion worth of debt, for starters, and even up to $200 billion of debt, with a $9,500 debt for every Australian. This is absolute panic stuff, in the great tradition of the Labor Party. There is absolutely no doubt that this is Whitlamesque. I read comments by some commentators in the Australian who were critical of coalition members of parliament making that association. But let us reflect on that. Gough Whitlam was Prime Minister at a time of international economic turmoil. Kevin Rudd is Prime Minister at a time of international economic turmoil. Gough Whitlam thought he could spend his way out of trouble. Kevin Rudd thinks he can spend his way out of trouble. Gough Whitlam went to great lengths to borrow more and more money when he was getting into trouble because he could not keep up with it all. Kevin Rudd wants to borrow more and more money. Kevin Rudd wants to increase our bankcard to $200 billion—a staggering $200 billion. It is mind-boggling. Senators opposite are going to go down in the history of Australia as having been complicit in taking Australia into the largest debt ever in the history of the Commonwealth. In 20 years time people will look back at this chamber’s members and they will say, ‘What did those senators do? Why didn’t they do their job? Why didn’t they hold the government to account? Why didn’t they stop this from happening?’ We have on the other side senators who are not even prepared to stand up and talk about it. Do you know why? The government has told the senators on the other side not to participate in the debate, so they just shut up.

Senator O’Brien interjecting—

Senator CORMANN —Are you allowed to speak in this debate?

Senator O’Brien interjecting—

The ACTING DEPUTY PRESIDENT —Order! Senator O’Brien, I have asked you previously to cease interjecting and I have asked Senator Cormann not to respond.

Senator O’Brien —But—

The ACTING DEPUTY PRESIDENT —Excuse me, Senator! I was about to ask Senator Cormann to address his remarks through the chair rather than debate across the chamber.

Senator O’Brien —Mr Acting Deputy President, I rise on a point of order. Is it in order for the senator to fabricate the position of a senator across the chamber? Is that a misrepresentation or a reflection?

The ACTING DEPUTY PRESIDENT —Senator O’Brien, that is not a point of order. And I might just, while I am speaking, remind Senator Cormann that it is appropriate, if you refer to a member of the other house or the Prime Minister, to address them in the appropriate manner—by their title or Mr or Mrs.

Senator CORMANN —Senators on the other side are very touchy, aren’t they? Very, very touchy, aren’t they, those senators on the other side? Through you, Mr Acting Deputy President, I would like to know whether one of those senators is actually going to participate in this debate, because I believe—and I am happy to stand corrected; I am happy for a senator on the other side to get up, ask for the call and correct my statement—that senators on the other side have been told by their government not to participate in this debate. I believe that senators on the other side have been told not to scrutinise, not to speak, not to in any way question or participate in the debate about this $42 billion package. In my view, they are just sitting there and not doing their job. The point I am making is that senators on the other side will go down in Australian history as not having done their job at a crucial time. At a time when we are facing significant economic challenges, the Labor side—in this Senate, at least—were not prepared to participate in this debate.

I will sum up by going back to where I started. These are serious times—of course they are. These are serious times which require serious action, not just any action. This package is not serious. The way the government have sought to rush this package of bills through the parliament is not serious. The way the government are treating this debate is not serious. If the government were serious about doing the right thing by the Australian people, if the government were serious about doing something that is going to help take the Australian economy forward, they would engage sincerely with the opposition. They would take up the offer of Malcolm Turnbull, the Leader of the Opposition, to engage constructively with the opposition and have a discussion about how we can come up with a more sensible package, a package that is actually going to make a difference.

Rudd seeks permission to go $200 billion into red

If Rudd was an economic conservative as he claims to be, he wouldn't attempt to ram a $42 billion package through parliament within 48 hours of its announcement. That allows for little more than an hour of scrutiny for each billion of one of the largest spending packages in Australia's history. Worryingly, the government is already seeking approval from Parliament to increase its borrowing limit from $75 billion to $200 billion.

Let's not be naive: notwithstanding the urgency of the financial crisis, the motivation for seeking to have the Bill passed through Parliament by Thursday night was to avoid close scrutiny of the package. There is no justification for not giving the public adequate time to examine the stimulus package in detail.

Rudd miscalculated and displayed his arrogance in expecting that he could bully the Coalition into supporting the Bill because opposing it would not be politically popular. His plan has backfired; the events of today will now draw attention to a strength of economic conservatism, an ideology he has railed against: prudence with the use of taxpayer's money.

Here is the speech that Malcolm Turnbull gave today in Parliament:

Mr TURNBULL (Wentworth—Leader of the Opposition) (9.59 am)—Every time I meet a school group visiting this place I tell them that every member and senator is working hard to make Australia a better place for them to grow up in. I say that we often disagree but that everybody is focussed on them and I tell those children that this parliament belongs to them, that everyone is committed to a better future for them. I wonder today if I can say that to them again, because every billion dollars that we spend, every billion dollars of debt that we incur will have to be repaid by those children.

In government, we sought to take financial burdens off the next generation, and we did so. The Future Fund did just that, relieving those schoolchildren of the burden of over $100 billion of future payments for public sector pensions, and now a Labor government is piling those burdens on those children once again. In four years, net debt will be $70 billion, around $3,300 for every man, woman and child, and the government has asked for the right, just a moment ago, to borrow up to $200 billion—$9,500 for every man, woman and child in Australia.

The plan we were presented with by the Prime Minister yesterday reeks of nothing more than panic. Far from a steady hand at the tiller we have a government led by a man who lurches from one ill-considered, ill-thought-out economic decision to another. We have seen the catastrophic unlimited bank deposit guarantee develop without even speaking to the Reserve Bank. We have seen the enormous harm that it did through the community—the hundreds of thousands of Australians whose savings were frozen as a consequence, the finance companies who could not raise money and the motor dealers who could not get finance. All of that flowed from an ill- considered decision. But there have been so many others. We saw the cash splash just before Christmas. We have the incredible proposal of the Ruddbank to prop up commercial property values for the benefit of the big banks and their profits.

In the light of all of that, all of those errors—acknowledged errors, not in dispute; even the Prime Minister’s defenders acknowledge that he has made mistakes but hope that he will make fewer in the future— instead of carefully compiling a comprehensive response to this crisis over the summer, the Prime Minister spent his time writing a bizarre ideological treatise. It was as though he stepped into another world, a parallel summer fantasy dimension where Australia’s economy has been wrecked by lack of regulation by Liberal governments. Anybody reading his treatise could reach no other assumption and yet we see his own deputy, the Deputy Prime Minister, saying that Australia’s financial and prudential regulatory system was better than world-class and we see his small business minister writing in the Australian today ‘that Australia’s financial regulation is the envy of the rest of the world’. His own ministers are boasting of the stability of a financial system and its prudential and financial regulation that were put in place by the very men and women that their leader denounces as neoliberal extremists committed to letting the market rip and opposed to any form of regulation. It says a lot about the delusional nature of the Prime Minister at this time that not even his own ministers are prepared to sign up to his rantings.

We have said again and again that we are prepared to sit down and discuss with the Prime Minister the form of the responses to this economic situation. All of those offers have been rejected. Yesterday the government presented Australia with its package at 12 noon. We were briefed by a handful of bureaucrats who were not able to answer even basic questions about the details of the package. They are still coming back to us on some of those issues. At 2.30 pm the Prime Minister read his statement, which we had been given at 1 pm. The government then went on the attack. It was irresponsible of the opposition not to immediately endorse the $42 billion package. Moreover, it had to be passed through the House and the Senate by Thursday. In other words, the Parliament of Australia would be given about 48 hours to consider and approve the expenditure of $42 billion.

We support the Senate coming back next week, deferring estimates, to go through this plan in the greatest detail. It is vital that we do so. One can well imagine those schoolchildren of today who, as adults years hence, are paying high taxes to pay off the debt. When they complain about the high taxes they will be told by governments, by ministers, ‘Well, we’ve got this big debt. You’ve got to pay higher taxes to pay it off.’ They will ask us, ‘What were you thinking when you spent all that money? Why did you do that?’ We will have to answer, ‘Well, we didn’t have much time to think about it at all really.’

The opposition will vote against this package in the House and in the Senate. We know that this is not going to be a popular decision, but it is the right decision. The Prime Minister has made one easy decision after another. He has not made a hard decision since he took up that high office. But somebody has to stand up for what is right. Somebody has to stand up for fiscal discipline. Somebody has to stand up for the taxpayers of Australia and ensure that we do not impose staggering levels of debt on future generations. We will make that stand and we will make it knowing it is unpopular but recognising that the Australian people expect us to do what is right, and we will do that.

This stimulus represents about four per cent of GDP, almost all of which is spent over the next two years, following up on the one per cent of GDP cash splash in December last year. Despite the protests of the Treasurer, the fact that this stimulus follows so hard on the heels of the earlier one indicates that the December cash splash did not work. The general view among economists is that at least two-thirds of it was in fact saved. I am sure that most of the balance was well spent but not all of it was, as poker machine and hotel takings demonstrate. The fundamental problem, which the government refuses in its arrogance and in its blindness to acknowledge, is that, if you give people one-off windfall lump sums in uncertain times, they are more likely to save it than to spend it. That is a perfectly rational and prudent response. Indeed, the Prime Minister’s call at the end of last year on Australians to ‘spend, spend, spend’ is jarring. It was a jarring statement because most Australians—all of us, I am sure—know full well that at the core and instigation of this global recession was too much debt. In other words, whether governments like to hear it or not, a good old-fashioned conservative value of thrift and saving is going to come back into fashion, it is coming back into fashion and it ought to come back into fashion.

We do not reject the need for a stimulus at this time. The first question is: how big should the stimulus be today? Our judgement is that $42 billion is more than is appropriate right now. The government is looking increasingly like a frightened soldier who fires off all his ammunition in a panic in the first minutes of an engagement. This downturn may be very long lasting and we cannot possibly afford to spend larger and larger sums like this every quarter. Just think about it. If this package goes through, the government will have spent about one per cent of GDP in a cash splash in the December quarter and then there will be, just in the cash payments alone, another one per cent or somewhat more spent in the March quarter. It should not be overlooked by anybody that, just as the government times its announcements to coincide with Newspoll, so it is timing its handouts on a quarterly basis to avoid, no doubt, a quarter of negative growth. But where is that going to lead us? If we look at the cash handouts alone that the government is proposing to give away in March and that it gave away in December, what are we to expect in the budget and beyond? Are we going to rack up $40 billion or $50 billion a year in cash handouts alone?

We do not have access to any more financial information than that contained in the government’s Updated Economic and Fiscal Outlook which, as I said, we were given yesterday afternoon. But if the Prime Minister wants our support to a fiscal stimulus then he must be prepared to sit down and talk with us, he must be prepared to put the cards on the table and he must be prepared to negotiate. His current political hero, President Obama, probably the most popular political leader in the world, sits down with his political opponents. He is prepared to negotiate. He is prepared to engage the members of his legislature. This Prime Minister is so vain, so arrogant and so convinced that he and he alone is right that he is not prepared to do any more to his political opponents than hold a gun to their head and say, ‘Stand and deliver and you’ve got two days to do it’.

Unlike the Prime Minister, we do not contend that the approaches we favour are the only way to go. There is an infinite range of policy options available at this time and all of them have detractors and supporters. None of them are certain of success. Let me give the House an indication of our views of the particular elements in this package and the elements that we believe would be more appropriate. This is a basis for negotiation with the government. First, as I said a moment ago, we believe the package is too big. We do not rule out supporting further stimuluses in the future depending on the economic circumstances and their composition. We need to keep a few shots in the locker. Our judgement is that a more appropriate level of stimulus is in the order of 1½ to two per cent of GDP, or between $15 billion and $20 billion dollars. That is a matter of judgement. There is no mathematical formula that gives you the right answer here, but our judgement is that that is the band within which the stimulus should be. If people believe that we are more prudent, more conservative in spending taxpayers’ money and we err on spending less than more then they are absolutely right. That is our philosophical approach to these issues. It is not a question of letting the market rip; it is a question of taking other people’s money seriously, guarding it, protecting it and ensuring that it is spent wisely and well. That is our commitment.

We do not support a further round of cash handouts. That is a very unpopular thing to say and I acknowledge that, but it is the right thing to say. I think most Australians will recognise in their hearts that it is the right thing to say. It is extraordinary that the government would embark on this when there is no basis for concluding that the cash splash of December was effective. At the very least, the impact of the December payments needs to be taken on board. We need to know precisely what it is. Bear in mind that these handouts were paid two weeks before Christmas, and I said at the time that this was an interesting economic experiment. If ever a one-off handout, a one-off cash payment, was going to be largely spent it would be this one because the timing, being just before Christmas, was perfect for those people who wanted that outcome. Nonetheless, it appears that it was largely not spent, and bear in mind, the recipients in December were, for the most part, on low incomes—pensioners and others.

The beneficiaries of the payments in the government’s package today will include many Australians at middle income levels. Furthermore, the economic climate is much more uncertain—or more uncertain, at least—than it was in December. The incentives to save rather than to spend are therefore a lot greater. So we would support as an alternative the bringing forward of the 1 July 2010 tax cuts to 1 January this year. This will have a budgetary cost. It is obviously spread over time and it is not as much as the cash payments in the Prime Minister’s plan, but it is temporary. It is a timing difference. It will benefit all taxpayers, but it will benefit most significantly those on low and middle incomes. It is therefore very well targeted. It does not put $950 in everybody’s pocket today, but that is the point. It increases permanent income and it therefore provides a greater incentive to work and to invest. And by the middle of next year, households will have more money in their pocket and the prospects of more money to come. They will have more money in their pocket immediately, of course.

The Prime Minister and the Treasurer have tried to portray anybody who doubts their analysis of quick cash handouts as some kind of economic quack. That just underlines both their lack of reading in this area and their incredible arrogance. There are many voices all around the world questioning whether the immense scale and scope of the fiscal measures being hastily implemented by many governments are the appropriate response. There are many reputable economists who wonder whether those measures will be effective and whether they represent the best use of taxpayers’ money. The Treasurer yesterday derided the views of the Stanford economist John Taylor as irrelevant and extreme. It is very interesting that the Treasurer of the Commonwealth of Australia would so personally and viciously attack one of the most distinguished economists in the world. Given the influence Taylor has had on central bank thinking around the world, this is simply outrageous. But, more importantly, there are plenty of other economists who are similarly sceptical over the headlong rush to huge deficits and heavy debt. They include Robert Lucas and Ed Prescott—both past winners of the Nobel Prize for Economics—Robert Barro, Eugene Fama and Gregory Mankiw among many others. These are not quacks. These are not extremists. These are not irrelevant. These are great economic thinkers who have a view that is respected around the world but not, apparently, by the all knowing Treasurer that we have on the other side of the House.

Nor is it right to portray as ignorant extremism the coalition’s stance that tax cuts often provide a larger boost to the economy than public spending. Indeed, one of the most powerful and persuasive empirical studies in the United States, which has been much quoted in the financial media, saying that tax cuts have a high multiplier—that is they provide a larger bang for the buck to the economy than outlays—comes from none other than Christina Romer, now a senior economic official in the Obama White House. Now, clearly these are very difficult times and there are a range of economic opinions and interpretations. Nobody has all the answers. So it is the height of arrogance and intolerance for the Prime Minister and the Treasurer to declare that the only way is their way. It just indicates a lack of willingness to engage in a constructive way both with the wider community and a wide range of views, not to speak of the views of other members of this parliament.

The next large element in the plan is an investment in schools. In government, we very heavily invested in schools. Indeed, one of our most successful and, I would say, popular programs was the Investing in Our Schools Program which the Rudd government has terminated. The $14 billion schools investment component of this package seems to have been selected largely because the government believes this building can be undertaken quickly. Experience suggests this will not be the case. The plan to work hand in glove with state governments reinforces everybody’s scepticism about that. We would welcome a renewal, indeed acceleration, of the Investing in Our Schools Program. However, we have to ask this question: is the most urgent infrastructure deficiency requirement in Australia primary school assembly halls and libraries? What about hospitals? What about nursing homes and aged care? What indeed about the National Broadband Network? What about water infrastructure, and what about expanding, and above all maintaining, our National Transmission Network? Labor’s response to this, of course, will be that there is more money to come for these measures, but there is the point. The finances of the Commonwealth are not a magic pudding. Everything has to be paid for at some time. Think of the faces and look into the eyes of those schoolchildren that come to parliament every day and remember that as these debts are piled up, billion upon billion, it is they who will have to pay them off.

In an indication of the specific responses we would bring to this plan, we would support a renewed Investing in Our Schools Program. Based on our experience, we believe that $3 billion over three years could be, and would be, well spent and, depending on demand, and of course on the economic conditions, consideration can always be given to allocating more funding. That is a very important point. The parliament is not going into perpetual recess. The parliament is always here. We can come back and if circumstances require a greater stimulus of a different kind and a different time, we can do that. The Prime Minister is in a panic. He is firing off all his ammunition at once. We need to keep more in reserve—prudence demands that.

The biggest gap in this package by far is jobs. The three top priorities this year must be jobs, jobs, jobs. Where is the assistance for small business in keeping employment high? The government will say that the insulators and the builders will be supported by these programs, and so they will. But most small businesses will not benefit from these spending measures. Fiscal stimulus should aim to invest in the Australian economy in a way that makes the whole economy more productive, efficient and competitive. Picking off one sector after another will always result in dislocations and discrimination against the sectors that are not privileged. That of course is why tax cuts are so effective, because every business and household benefits.

We believe an element of a stimulus package should that it lowers the cost of employing Australians. A key focus should be making it easier to keep Australians in their jobs, especially for small business. The accelerated investment allowance proposed has some merit, but a small- business which is struggling with declining revenues would be better off with additional cash flow that it can deploy as it sees fit. We want to discuss practical measures with the government that will put cash into the hands of small businesses. One proposal which we have seen and which has considerable merit would be for the Commonwealth to cover, for a period, a portion of the superannuation guarantee levy. Appropriately costed within the framework of a more prudent stimulus, this would provide support for small business, lower the cost of employment and provide an incentive across the board to every small business.

We welcome the government paying attention to the value of insulation. It is a great disappointment, as I noted in my speech a few weeks back, that the government’s election policy on insulation was left in complete abeyance. Nothing was done on it at all. Indeed, as of 20 January the government’s website dismally told anyone who was interested that the program details had not yet been developed—so much for efficiency. Insulation, however, is an energy efficiency measure that pays for itself, and government subsidies for insulation should recognise that. The $1,600 subsidy will, according to Mr Peter Ruz of Fletcher Insulation, who is quoted in the newspapers today, mean that over 90 per cent of jobs would be completed at no cost to the owner. The subsidy is not means tested. We would support an insulation subsidy of a lower amount and I would suggest for the government’s consideration one that is, for example, $500 for all houses, increasing to $1,000 subject to a means test. That would reduce the cost of the measure considerably but remain a very significant incentive to the insulation industry. A similar approach could be taken to solar hot water.

This stimulus has to provide the appropriate level of economic stimulus, so it has to be directed in a way that is effective. While the cash handouts will be popular, we do not believe they will be an effective economic stimulus. We believe that bringing forward the 2010 tax cuts would cost less and have much greater economic effect. They would benefit households and small businesses right across the board. We believe that the key issue for the government is the scale of this stimulus, the size of it. We believe it is too large and not composed of sufficiently effective measures. I have given some indication of ways in which the measures could be more effective. Above all, the government must ask itself as it looks at this and no doubt other measures it will bring forward: are they going to provide a benefit across the board? Are they going to make Australia’s economy more efficient, more productive and more competitive? If they do not do that, the money will not be well spent. The reality is that while these times call for governments to invest more than they normally would—and we recognise that—the investment and spending decisions must be of the highest quality. We should not be investing in measures or programs which do not stand on their own merits. They have to be measures that we would invest in in good times or bad. Otherwise, we are literally wasting taxpayers’ money at a time when, depending on the development of this global recession, we may find ourselves in greater need of those resources in the years to come.

I recognise that much of what I have said will not be popular, but it is right. We must stand up for prudent financial management. Every dollar that this parliament approves to be spent belongs to somebody else. We are dealing with other people’s money. More significantly than that, we are dealing with the future of the young Australians who come here to visit this parliament. I do not want to have to look into their eyes and say: ‘When you grow up you will be paying higher and higher taxes because of the debt your parents’ generation racked up today.’ We recognise these times call for investment and action by government. But it must be the right action, and governments must be prepared to take tough decisions, be prepared to take the right decisions and have the courage of discipline. The Prime Minister has shown none of that. He has wanted to be Santa Claus—everybody gets a prize. The problem with everybody getting a prize today is that the children of today will be carrying a very heavy penalty in the years to come. We are committed on our side of the House to ensure, insofar as we can, that every dollar that is spent this year and in the years to come is spent wisely and always remembering those children, because it is those children who will have to pay off Labor’s debt.

Rudd makes political mileage out of financial crisis

Self-proclaimed economic conservative, Kevin Rudd, is economical with the truth in the explanation he gives for the global financial crisis. Rudd sanctimoniously gave his version of history in a speech last year:

Mortgage salespeople preyed on the aspirations of vulnerable families, soliciting them to take out home loans. Lenders confused working-class people, non-English-speaking families and first-time borrowers with hidden fees, ratchet interest rates and confusing repayment terms. Predatory financiers inflated borrowers' income and overstated their ability to pay back a loan.

These were the most obvious manifestations of the culture of greed and short-termism that pervaded large parts of the US financial sector. This culture was never challenged by a political and economic ideology of extreme capitalism. And this crisis bears the fingerprints of the extreme free-market ideologues who influence much of the neo-liberal economic elite, free-market ideologues who have a naive belief that unrestrained markets are always self-correcting and that markets left to themselves will always achieve optimum outcomes. Ideologues who believe that any regulation of private business is fundamentally wrong.

The truth is that it was misguided regulation rather than lack of regulation that was behind the lax lending standards which fuelled the housing bubble. The US government implemented a series of reforms that weakened lending standards with the aim of increasing home ownership among the poor and ethnic minorities. Lenders were compelled to give mortgages to borrowers on low incomes to satisfy regulations that were imposed by the Community Reinvestment Act (CRA). The government-sponsored enterprises (GSEs), namely Fannie Mae and Freddie Mac, had to meet "affordable housing goals" under the 1992 Federal Housing Enterprises Financial Safety and Soundness Act (FHEFSSA) by purchasing a certain percentage of mortgages for low and moderate income borrowers and those living in "underserved" areas.

Rudd's ideological posturing has not gone without criticism. Sinclair Davidson, Professor in the School of Economics, Finance and Marketing at RMIT and a Senior Fellow at the Institute of Public Affairs, gave his thoughts on Rudd's anti-capitalist remarks in an opinion piece that was published in The Advocate:

There really is nothing new under the sun. So too with the current financial crisis. But moralists are making hay while the sun shines. Prime Minister Kevin Rudd has blamed the financial crisis on 'extreme free market ideologues' who have 'resisted the regulation of financial markets.'

In contrast to what Kevin Rudd has argued it is a failure of regulatory capitalism. The causes of the current crisis are not 'greed and fear'; but rather the unintended consequences of do-gooders, bureaucratic intervention, and anti-capitalistic prejudice.

Rudd intends to continue with his campaign to ideologically indoctrinate Australians using the global financial crisis as an example of a failure of capitalism. While Australians are losing their jobs, Rudd has been writing a 7,000 word essay calling for greater government intervention in financial markets, even though he agrees that our financial system is among the most well regulated in the world.

IMF on the composition of stimulus packages

Contrary to the claims being made by the Federal Treasurer, the IMF is not advising against the inclusion of tax cuts in fiscal stimulus packages. The following is stated in the executive summary of an IMF staff position note titled Fiscal Policy for the Crisis:

Looking at the content of the fiscal package, in the current circumstances, spending increases, and targeted tax cuts and transfers, are likely to have the highest multipliers.

Olivier Blanchard, Economic Counsellor and Director of the Research Department, and Carlo Cottarelli, Director of the Fiscal Affairs Department, gave their views on this issue in an article published in IMFSurvey Magazine. They recommend that tax cuts be targeted at consumers who are credit constrained. Blanchard states:

Consumers who are credit constrained are likely to spend any extra money derived from a lower tax bill.

Cottarelli also mentions the importance of diversity in the composition of stimulus packages:

Given the complexity of this crisis, policymakers have to recognize that there is an unusual degree of uncertainty about the impact of specific policies. Thus, they should not put all their fiscal eggs in just one basket, and the right package probably includes a mix of different policies.

Layoff trackers tally the carnage

Corporate razor gangs have been working overtime as the global slowdown takes grip on the real economy. The gravity of the crisis became clear to the world in September and October of 2008 with the collapse of many major financial institutions and the crash of the stock market, and since then many companies have moved to downsize their workforce.

The mass layoffs we are witnessing are just the beginning of the global slowdown and we can expect them to continue for quite a while. Steve Ballmer, CEO of Microsoft, which just announced cuts of 5,000 to its workforce, offered his thoughts on what lies ahead:

We're certainly in the midst of a once-in-a-lifetime set of economic conditions. The perspective I would bring is not one of recession. Rather, the economy is resetting to lower level of business and consumer spending based largely on the reduced leverage in economy.

A few pages tracking the mounting layoffs have appeared on the Web:

Layoff Tracker — Forbes.com
Tech layoffs: The scorecard — CNET News
The Wired.Com Tech Layoff Tracker — Wired.Com
TechCrunch Layoff Tracker — TechCrunch
Vault Layoff Tracker — Vault

Forbes.com is also giving a weekly layoff report:

The Weekly Layoff Report: Jan. 23, 2009
The Weekly Layoff Report: Jan. 16, 2009
The Weekly Layoff Report: Jan. 9, 2009

Recently announced mass layoffs include:

Citigroup — 52,000
Bank of America — 35,000
Circuit City — 34,000 (bankrupt)
Woolworths Group — 27,000 (under administration)
Hon Hai — 20,000
Rio Tinto — 14,000
Alcoa — 13,500
AT&T — 12,000
BT Group — 10,000
Dell — 8,900
Sony Corporation — 8,000
TDK — 8,000
BHP Billiton — 6,000
Sun Microsystems — 6,000
Intel — 5,000-6,000
Credit Suisse — 5,300
Eaton Corp — 5,200
Dow Chemical — 5,000
Ericsson — 5,000
Laird — 5,000
Microsoft — 5,000
Stora Enso — 5,000

Rumours about the future of Alcoa's Kwinana refinery

An atmosphere of gloom hangs over Alcoa's Kwinana refinery as rumours spread about the future of its alumina operations. The refinery has been in operation since 1963 and employs about a thousand personnel. The Western Australian refinery, located about 22 km south of Perth, produces about 2 million tonnes of alumina annually.

Alcoa previously announced that it will shed 15,000 jobs globally but there will be no cuts to its workforce in WA.

The US government's role in the global financial crisis

Even the most determined lending institution will have difficulty cultivating business from minority customers if its underwriting standards contain arbitrary or unreasonable measures of creditworthiness. Consistency in evaluating loan applications is also critical to ensuring fair treatment. Since many mortgage applicants who are approved do not meet every underwriting guideline, lending policies should have mechanisms that define and monitor the use of compensating factors to ensure that they are applied consistently, without regard to race or ethnicity.

—{Closing The Gap:} A Guide To Equal Opportunity Lending, The Federal Reserve Bank of Boston

People immediately point the finger of blame at bankers and corporate executives in the search for answers to the unfolding global economic disaster. This is not surprising, given the attention the media has given to lenders offering loans to people who were clearly in no position to afford the repayments. Many would have heard of so-called NINJA loans, where NINJA stands for No Income, No Job and no Assets. There were option ARMs that allowed the borrower to select monthly repayments that would increase their debt. Finally, lenders made it easy for borrowers to avoid making a down payment by giving out a second piggyback mortgage to pay off the down payment required by the first mortgage. Clearly there had been a decline in lending standards that fuelled the housing bubble, which eventually bursted and created financial misery for millions. The question that remains unanswered is why were lending standards loosened to such an extent that lenders became virtual mortgage vending machines. Stan J. Liebowitz at The Independent Institute has released a report explaining how the government intervened in the mortgage market with good intentions, but created greater problems than those it was attempting to solve.

In Anatomy of a Train Wreck: Causes of the Mortgage Meltdown, Liebowitz explains how a push by the US government to increase home ownership, especially among the poor and ethnic minorities, led to a weakening of lending standards. There was a perception that minorities were being discriminated against in mortgage applications. As a result, the Community Reinvestment Act (CRA) was passed, forcing banks to provide loans to applicants from all neighbourhoods within the areas they operate. It was aimed at preventing redlining, where banks refused to offer services to residents in certain designated areas. The US government also passed the Home Mortgage Disclosure Act (HMDA), which required lenders to provide detailed data about their mortgage applications. Data obtained via the HMDA allowed lenders to be named and shamed in the media for apparent discrimination by comparing the rejection rates of applicants by race.

Liebowitz concludes that the mortgage meltdown was caused by adjustable-rate mortgages—both prime and subprime—given out under lax lending standards. He disputes the widely held view that the housing bubble and subsequent burst was driven by subprime loans given by unscrupulous lenders to vulnerable clients. Foreclosures for both prime and subprime loans began to soar in the third quarter of 2006, but the main contributors to the rise in each were the adjustable-rate mortgages.

RBA governor shoots himself down in flames

Many economists will be outraged by the following statement made by Glenn Stevens, Governor of the Reserve Bank of Australia, at his address to the Australian Business Economists Annual Dinner:

I do not know anyone who predicted this course of events. This should give us cause to reflect on how hard a job it is to make genuinely useful forecasts. What we have seen is truly a ‘tail’ outcome – the kind of outcome that the routine forecasting process never predicts. But it has occurred, it has implications, and so we must reflect on it.

A number of economists have been warning about this for years, including

• Nouriel Roubini, Chairman of RGE monitor;
• Peter Schiff, president of Euro Pacific Capital, Inc.; and
• Steve Keen, Associate Professor at the School of Economics and Finance at the University of Western Sydney, who maintains the site Steve Keen’s Oz Debtwatch.

It makes you wonder if he listens to anybody outside his board meetings.