Our idea was supported by Rudd/Swan, who directly sought out our advice, and by Malcolm Turnbull, the then leader of the Opposition with whom we also consulted, but violently opposed by the RBA, Treasury and the AOFM. The latter is a little ironic given that the Treasury now promotes the merits of the AOFM interventions in senior staff speeches (eg, see Ken Henry here), as does the RBA (cf. Guy Debelle's regular references to the subject).
The Government has thus far committed $20 billion to the initiative, and mostly followed our prescriptions (eg, harnessing the Treasury's AOFM to implement it). You can clearly see the impact of this policy via the orange-shaded AOFM activities in the next three charts.
Since the AOFM has acquired most of its RMBS at well over 100 basis points above the swap rate, and spreads seem to be gradually compressing, they look to be making a decent amount of money on their investment in a mark-to-market sense over and above the fact that they (ie, taxpayers) are earning a running yield (or return) of about 6% pa on these assets, which is substantially higher than the current 3 year government bond rate at which taxpayers borrow, which is less than 5%.
