The announcement by Leader of the Opposition, Mr Bill Shorten that, if elected, his government will establish a Royal Commission into banking has set a cat among the Australian banking pigeons and their many fanciers in the media and in sections of the LNP . ( Note: there are more than a few in the LNP who welcome the idea of a Royal Commission into banking including Mr Warren Entsch and Mr John “Wacka” Williams)
As a general rule the more loudly interested parties protest about receiving some public scrutiny the more certain you can be that a close look at what they are up to is long over due. After all a Royal Commission is an excellent “branding” opportunity if you are as white as the driven snow.
The Australian Bankers’ Association was quick off the mark with a press release.
“Mr Münchenberg said the ALP’s proposal would have international ramifications for Australia. “Banks are particularly concerned that a call for a royal commission will send alarm signals to international investors about Australia at a time of global volatility,” he said.
Such delicate flowers are international investors, so easily alarmed, like a gaggle of twitchy and frightened geese ready to fly away at any moment.
“Lenders also argued the commission could rattle international investors that are vital to the financial system, though analysts said these claims were doubtful. Westpac said the announcement sent “confusing messages about the strength of Australia’s financial system. This could impact confidence in the economy.”
Confusing? What? Are the international banking brotherhood under the impression that a “strong” economy is one where regulators are too scared to investigate with vigor the behaviour and performance of the banking sector?
The Treasurer, Mr Scott Morrison was quick to reprise “spooky” – last heard in his negative gearing / CGT discount “Fear-apolooza” national tour.
Mr Morrison lashed Mr Shorten’s “reckless” urging of the government to consider launching a royal commission into the banking sector, warning the Opposition Leader’s rhetoric could spook foreign investors.
Considering that most of the time the banking sector rabbits on endlessly about rational expectations, precise and hard headed calculations of risk and reward, business acumen, sophisticated economic and financial modelling, one would think that people like the Bankers Association and Mr Morrison would be slightly embarrassed by their scare mongering that implies bankers all wear mood rings and dash when the shade marginally shifts.
But then shameless is a fundamental quality of any decent PR person, spruiker or politician.
Yet while they do not like the idea of a Royal Commission poking around all their alleged sharp dealings in the following areas
- Financial planning scandals
- Life insurance scandals
- Sub-prime lending
- Low doc lending
- Rigging rates
- Over charging fees
that is NOT what they are really worried about.
They are much more concerned about the Royal Commission drilling down and inspecting the rotten and broken structure of modern Australian banking and how it is regulated.
They understand that any prolonged examination of how modern Australian banking works runs the risk that Henry Ford is claimed to have identified back in the early part of the 20th century.
“It is well enough that people of the nation do not understand our banking and monetary system, for if they did, I believe there would be a revolution before tomorrow morning.”
So what then is it about how modern Australian banking operates that is likely to upset the Australian public if they were better informed?
The core of the problem is that in our system of banking the power to create money has been largely outsourced to private banks and when they create money they do so with a trailing commission attached (interest).
In other words when you borrow from a bank they create the money by the accounting entries that they make when they record the loan. They are not simply recycling money that has been deposited by someone else. If this sounds outlandish – read or watch the following – Bank of England (Video), Bank of England (paper) and Dr Werner
This means that control of public money, one of the tools most critical to the proper functioning of a civilized society, has been given over to private organisations who then unsurprisingly seek to generate profits from that near monopoly control. And as anyone who has followed Australian Banking over the last 20 years will know – we are talking about very juicy profits – extracted from the well squeezed Australian economy.
And if that sounds like a very odd thing for a democratic government to have done, it IS a very odd thing and is largely an accident of history.
In essence the introduction of the model of Central banks as “banks of last resort” to limit the damage caused routinely by the booms and busts resulting from the fraudulent practices of private bankers – was a very poor choice.
The simple and sensible alternative was to introduce a supply of interest free public money that the public could use and save in with confidence and limit bankers to the role of inter-mediating transactions in that public money between savers and borrowers (i.e. do what most people think banks are doing – lend the deposits of savers to people who wish to borrow) .
Instead government allowed the bankers to continue their fraudulent lending practices only now with the taxpayer providing a guarantee! TBTF – too big to fail.
A barbaric economic relic from the past that has caused incredible damage to millions of people over the last 100+ years – even when it was more closely regulated than it has been since the dawn of the “financial deregulation” fad in the 1980s.
The miserable idea that a fundamentally flawed monetary model can be ‘fixed’ with regulation should be the core of the Royal Commission’s work.
It is no surprise that regulation does not work for long when an industry has powerful financial motivations for dismantling the regulations or bullying those responsible not to enforce them. Even worse are rules allowing staff employed by regulators to move freely back and forwards to jobs in the industry they are regulating.
The good news is that fixing the broken model of Australian financial regulation is NOT difficult and there are available many models of better alternatives and how to implement them.
Investigating those alternative models – calling witnesses from across the globe that are experts in the field, presenting their evidence in the papers of the nation and on evening news bulletins and talk shows, is what the ALP/Greens/Independents Banking Royal Commission can drive.
Australia managed to skate through the GFC and as a consequence dodged a serious discussion of our model of money, banking and regulation.
Now is the time to have that discussion and the best way to get that happening is with a Banking Royal Commission.
Stayed tuned for the Glass Pyramid “Draft” Terms of Reference and Letters Patent.
The Australian banking and financial sector has grown into a massive tumor on the economy and now rivals the many productive sectors of the economy in its demand for economic resources and manpower. That means there are lots of people who will fight tooth and nail to maintain their current privileges and pay checks.
So even if some of them do understand the parasitical nature of the current model and the damage it is doing to the Australian economy, they are likely to oppose the work of an inquiry with appropriate powers and relevant Terms of Reference.
A healthy Australian banking system is likely to be much more modest in size and in levels of profits and remuneration.
A healthy Australian economy is one where most profits and remuneration lie in the productive sectors of the economy. The people who farm, grow, harvest, mine (managed by a NEVA), build, make, teach, cure and create.