The author has been described by News Ltd as an "iconoclast", "Svengali", a pollie's "economist muse", and "pungently accurate". Fairfax says he is a "Renaissance man" and "one of Australia’s most respected analysts." Stephen Koukoulas concludes that he is "85% right", and "would make a great Opposition leader." Terry McCrann claims the author thinks "‘nuance’ is a trendy village in the south of France", but can be "scintillating" when he thinks "clearly". The ACTU reckons he’s "an enigma wrapped in a Bloomberg terminal, wrapped in some apparently well-honed abs."

Monday, October 25, 2010

Two very interesting economics speeches today...

The first was delivered by the Governor of the RBA, Glenn Stevens. One of the more interesting observations was the change in our export mix over the last decade: exports to China have risen four-fold while exports to the US have more than halved (see table).

The second speech of interest was delivered at the same conference by Joe Hockey. It is probably the most important public statement on financial services reform delivered by an Australian politician in a long time. Bernard Keane describes it thus:

"This a key moment in the debate over financial regulation, which has been brewing since the Six Economists' paper last year, and before. Hockey has now staked out a position for the Coalition well in advance of the Government, and put real political momentum behind the issue."

It is a long document, which will no doubt be covered by media in the days to come. I will simply quote his nine ideas here, which all seem pretty sensible:

"1. Let’s give the ACCC power to investigate collusive price signalling (that is, oligopolistic behaviour), which is exactly what Graeme Samuel has called for;

2. Let’s encourage APRA to investigate whether the major banks are taking on unnecessary risks in the name of trying to maximise short-term returns that conflict with the preferences of those that backstop the system, namely taxpayers;

3. Let’s formally mandate the RBA to publish regular—rather than irregular—reporting on bank net interest margins, returns on equity, and profitability so that we can all determine whether the major banks are extracting monopolistic profits; that is, whether taxpayers are effectively subsidising supernormal returns;

4. Let’s investigate David Murray’s proposal to for Aussie Post to make its 3,800 branches available as distribution channels for smaller lenders. To be clear, the Coalition does not endorse Australia Post assuming balance-sheet risk and getting into the banking business itself;

5. Let’s ask the Treasury and the RBA to investigate ways to further improve the liquidity of the residential and commercial mortgage backed securities markets, which are an alternate source of funding for smaller lenders, including consideration of the Coalition suggestion to extend the Government’s credit rating to AAA rated commercial paper in those markets;

6. Let’s explore further simplification of the Financial Services Reform Act, to make the business of actually getting out and doing business easier;

7. Let’s direct APRA to explore whether the risk-weightings on business loans secured by residential properties are punitive. Many small businesses tell me that they do not receive sufficient financial benefit from pledging their family home to secure their borrowings;

8. Let’s commission a resolution to the debate about whether the banks should be able to issue “covered bonds”;

9. And let’s wrap up all of this work into a full review of the financial system—a Son of Wallis, or Grandaughter of Campbell, if you will."