Trump Card Played in Leadership Vacuum – A Symptom of Political Apathy & Why It’s on You!

Whether it’s the political, corporate or commercial landscape, I cannot remember a time when there was such a void of inspirational, dependable and quality leaders; leaders worthy of our respect, who are motivated to act for the benefit of all citizens and stakeholders.

Today our leaders seem totally disconnected from those they represent. They lack foresight or innovative thinking, they linger in the superficial, pander to hysterical minorities, blindly obey dubious orders and are bereft of humanity. They just seem to do a very ordinary job, feed their egos, take the bucks and do a runner. Where are the great visionaries, communicators, those with a strategic plan beyond their tenure, those who have the sound judgement to care about the future, who can implement and be accountable?

Our leadership has lost the wider community’s esteem and confidence. Is this just a reflection on social evolution, where we are fully connected in a virtual world but totally unengaged in the real spaces we live in? So what has caused this degeneration that has spawned the greatest leadership vacuum of our times?

I believe we need to better understanding what it is that we have done to discourage good candidates from standing for office and why we don’t elect them when they do. But first, we should closely examine the behaviour of our leaders and see if that provides an insight into why ‘we the people’ put them in power.

There are certain orthodox behavioural qualities that our leaders appear to exalt; a similar heartless air of superiority while oozing a miasma of decaying authoritarianism. They are all so similar right down to the same tailors, same stylists, all talking the same indecipherable gobbledygook, promoting the same mistakes while adopting the same bad habits.

They are all students of related institutions like the Harvard Business School, society’s brain trust, the analytical and strategic warlords of the free-market capitalist economies of the world. Minds ‘lost in blind logic’ peddling on the road to nowhere in a fragile global economy, which is essentially a pyramid scheme where viability depends upon the world population doubling every 30 years.

This is the leadership that keeps doing what they did yesterday and we wonder why nothing changes. They continue to govern with no imagination, no vision beyond their current term, standing for nothing, scared of being bold, no empathy, emotion, or wisdom, excelling only in personal postulation. They are just conscience minds living unconscious lives! Management completely indoctrinated in the ‘smile as you kill’ culture of fear, anxiety, intimidation and loathing, their creative skills muted, in a society where we suffer profoundly due to the prolonged under-representation of the feminine influence and sensibilities in leadership roles.

We cannot afford to continue to have sleepwalkers marching in time with the corporate music, blindly obeying callous orders without question or care for the harsh personal consequences of their insipid actions. Look where it has got us, living in denial, existing in a state of amnesia, disengaged, disinterested and dislocated! People are turning off, tuning out and dropping off; the reverse of the Human Be-In sixties counter-culture’s catch phrase.

Meanwhile, the leadership continues to be rewarded for failure, mediocrity and bad results. These executives are the beneficiaries of the global pyramid scheme, receiving usurious remunerations from the ‘wall of borrowed money’; the billions of dollars pouring into Western economies which has the effect of artificially inflating the value of financial markets while masking management’s commercial failings and incompetence.

So what can be done to improve the standard and quality of our leadership? It is ultimately up to us provided we are prepared to engage in the process and make sustainable choices.

It is interesting that in Western societies we champion democracy; in fact we enthusiastically and sometimes forcibly promote it along with the associated benefits of good Corporate Governance and free markets. Yet, we barely exercise our rights to participate in the democratic process and when we do, it’s begrudgingly. It’s no secret that potential leaders take full advantage of our illogical political apathy!

Look closely at who we vote for. We vote for or appoint individuals who promise more than the other candidates. The highest bidders appeal to what we want not what we need. We vote for ‘what’s in it for me’ and don’t care that we will spend our children’s future today and leave them a debt legacy tomorrow. These populists know our human weaknesses and failings, as they make grandiose promises to appeal to our greed and self-indulgence. They are not leaders, they just have despotic ambitions with the characteristics of contemptible parasites, yet we empower them because of our apathy, inaction and selective ignorance while wondering why it feeds our discontent.

The reason we don’t vote for real leaders is that only real leaders promise what we can afford, what is sustainable, what is achievable, what is deliverable, what is responsible, and what is fair and equitable. What chance do we have when greed, complacency, recklessness and foolishness plagues the constituency? It will lead to the eventual failing of the democratic system if we are not prepared to participate in the process and support leaders who advocate for responsible and sustainable policies.

The alternative, ultimately, is to witness democracy have its ‘wall come down’ and that will be very untidy (catastrophic) for everyone with anything to lose!

“Our scientific power has outrun our spiritual power. We have guided missiles and misguided men.” – Martin Luther King Jr.

18 August 2017

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Australia Creates a Power Supply Crisis

One thing I have learned over the last 40 years is that if you set the wrong targets, you get the wrong behaviour and, in turn, the wrong outcomes.

If you want to fix a problem, you look at what actions are necessary to resolve it. Setting Renewable Energy Targets (RET) will not resolve a Power Supply Crisis, only action will!

So what is needed? We need Power Stations that produce reliable ‘baseload supply’ when renewal energies sources do not… and we need them built now! What we don’t need is further delays talking about fanciful targets, while power stations continue to be closed without being replaced. 

It is simple supply and demand economics: the lower the supply the higher the price, the greater the chances of power blackouts and that’s what we have now, prices soaring at a rate of 20% pa!

I want to be clear: I am in favour of renewable energy and clean energy technology and I’m certainly in favour of lowering greenhouse emissions. However, the priority must be a top-down solution where we secure a reliable baseload power source to cover demand when intermittent renewable supplies are inadequate to meet peak loads or when weather conditions are unfavourable.

Build what we need not what we want! Wanting to build a power supply network based on Renewable Energy Targets has managed to bring the system to its knees, it has not worked, it has failed. We clearly have the wrong outcomes, all because Australia has taken a bottom-up (arse-about) approach to resolving a simple supply problem.

Build clean energy power stations. There are plenty of options for a country of only 24 million people and ample raw materials like coal and uranium, which can easily supplement renewable power sources, which still only accounts for approx. 40% of the energy supply when weather conditions permit.

What a moronic mindset; Australia exporting its coal to fuel the rest of the world’s ‘clean coal’ power stations, yet we refuse to build them at home! Is that how Australia achieves its Targets, by exporting their greenhouse emissions overseas and then taking the high moral ground for having a lower carbon footprint? Meanwhile Aussies are literally suffering in the dark through a long cold winter, particularly the youth, poor and disadvantaged!

Now, I know the solution sounds too simple and sensible, so I’ve probably lost the Green anarchists, the academic left, the wealthy and the under 35s; the politically apathetic demographic who are more likely to whinge the loudest when the system fails.

How can Australia get something so simple so completely wrong? “She’ll be right!”… I don’t think so!

See also Governments eliminating Greenhouse Emissions by shutting off the Power.

8 July 2017

Nothing in all the world is more dangerous than sincere ignorance and conscientious stupidity. – Martin Luther King, Jr.

Trump – Making Australia Great-er!

In virtually every conflict since World War II, Australia’s military has followed our allies the United States of America into almost every significant war: Korea, Vietnam, Iraq (1 & 2) and Afghanistan. Our continued mutual support is a World War II legacy, when our US friends sacrificed thousands of lives in the Battle for Australia against the Japanese, at a time when our own so-called ‘mother country’, Great Britain, was prepared to let us fall to the enemy, just as they did with their colony in Singapore.

The 1951 pact, the ANZUS Treaty, cemented our relationship and commitment to the conflicts that followed and I feel it reasonable to suggest that at that time most Australians were in favour of our unquestioning support for our US allies, to the point that we now have thousands of US personnel stationed in Australia.

However, more recently Australians are starting to seriously question our military marriage with the USA and are nervous about where this relationship may take us in the future. This scrutiny and re-examination is courtesy of the somewhat unpredictable behaviour of the new US Commander in Chief.

Now, some say ‘the country doesn’t change just because the President does’ or ‘not to worry because the bureaucracy still runs the country’, however, this is simply not true. The reality is that the society, values and principles of the USA have changed drastically since we signed the ANZUS Treaty in 1951, particularly and understandably since 9/11… so we can speculate whether the President’s conduct is a product of, or reflects the shift in the country’s ideology and standards and not the other way around.

One questions whether ‘we the people’ can recognise these vicissitudes? As an observer, I’m left perplexed. Oliver Stone’s recent ‘The Putin Interviews’ provided a fantastic insight: that the US actually has more in common with Russia than not. It reminded me of JFK when he said on the subject ‘Our most basic common link is that we all inhabit this planet. We all breathe the same air. We all cherish our children’s future. And we are all mortal.’ Yet perversely, the documentary seemed to be dismissed with somewhat spurious criticism that Stone’s questions were not tough enough!

Even when you apply the normal filters, Putin made some valid points. Why is the US more preoccupied with who leaked emails leading to the resignation of the Chair of the Democratic Party, rather than being outraged that insiders attempted to hobble the campaign of one of its own Democratic candidates. See, US Election: Democratic Party chair Debbie Wasserman Schultz resigns in wake of email leaks.

We hear all about the ‘land of the free’ and then watch a documentary like ‘Killswitch’ (2016) where Governments autocratically control the internet, or a film like ‘Snowden’ (2016) or another documentary like ‘Silenced’ (2014) about how the Government prosecutes whistle-blowers who disclose illegal activity relating to internal surveillance against the world’s citizenship. (The reality is that government agencies already know exactly who leaks what to whom, but obviously don’t disclose, dare they reveal which allies they are spying on)!

These examples reflect the societal changes in America. This is not the same ‘freedom’ Australians fought for alongside our American allies in the past. Australians are now starting to see a different ‘home of the brave’ and we can thank President Trump in part for that increased scrutiny, as I believe his behaviour will be the catalyst for Australians to wake up and very closely analyse what we stand for (and what we are seen to stand for) when we align ourselves with others.

5 July 2017

We are the United States of Amnesia, we learn nothing because we remember nothing.

– Gore Vidal

See also ‘Media Trumped’ and ‘Sinking Globalisation with Oil’.

‘Free Speech’ – It’s Not As Easy As ABC

My take on Yassmin Abdel-Magied’s Anzac Day social media post and why ‘freedom’ does not necessarily entitle you to ‘free speech’:

Most Australians are aware that in the past century over 100,000 of our countrymen gave their lives in our defence and to preserve the freedoms we value and enjoy today. Australians also understand the veneration we hold for those who served, the fallen, their sacrifice and that the Anzac tradition is sacrosanct.

(I say most Australians, as  I assumed it would be safe to include someone like Yassmin, who arrived in Australia at the age of 2, who is now 26 years old, well-educated with a Bachelor of Mechanical Engineering with honours from the University of Queensland and has served as a member of the Federal ANZAC Centenary Commemoration Youth Working Group).

What I would like to know is why some Australians choose to confuse the ‘freedoms’ won by the Anzacs with an entitlement for ‘free speech’? How could that be when ‘free speech’ is the right to express any opinions without censorship or restraint? All expressions and opinions actually come with enormous responsibilities and consequences, particularly if you fail to comply with the law or if you violate society’s standards in relation to causing ‘offense’. (In fact, the noun ‘free speech’ has so many limitations that the title is virtually a misnomer.)

Of particular offense to me is when I read claims that ‘our diggers died’ so that we can exercise ‘freedom of speech’ to publish offensive material disrespecting the same Anzacs who made the ultimate sacrifice defending our freedom. See ‘Yassmin Abdel-Magied says she was treated unfairly over her Anzac post’.

This type of odious subversion needs to be called out for what it is; Australia and New Zealand must continue to respectfully uphold and defend the tradition and memory of the Anzacs. Freedom is a Human Right that was fought for and won by the blood of our forefathers. It is the responsibility of this generation to defend it and in doing so, continue to commemorate those who made the ultimate sacrifice, with the reverence they so rightly deserve. ‘Freedom of speech’ on the other hand is something completely different and should not be confused with or used in the same context as ‘Freedom’, which in itself, is not completely free.

So, what makes a media presenter think they are entitled to post unfiltered offensive material and then claim unfair treatment as ‘the victim’ when publicly vilified? What makes them think that posting a ‘very quick’ apology (but not a retraction) negates the offense? ‘Freedom of expression’ or ‘free speech’ has always been subject to various forms of censorship, irrespective of the publishing platform, whether it’s a song banned from radio or a film rating or a time delay on live radio or television. The concept of filtering the media’s offensive behaviour with classifications or censorship is not new; the Australian Government Classification Board has been around for approx. half a century.

Then, of course, there is Section 18C of the Racial Discrimination Act (See also ‘Human Rights, 8 Commissioners & 18C’s’). What do you need to ‘live under’ if you are not familiar with the well-publicised examples of censorship to free speech, where it has cause to offend under the Racial Discrimination Act? How could you work in the media and not have a sound knowledge of what constitutes ‘offence’ in a media publication, including social media releases? (Incidentally, a ‘very quick’ apology does not ‘cut the mustard’ when you offend under 18C either.)

The motivation behind the ‘Anzac Day post’ was possibly more about promoting one’s public profile. We live in the age of ‘celebrity’ where any media or publicity is considered ‘good publicity’ irrespective of the degree of offensiveness. Perhaps it was an orchestrated stunt, an attempt to create enough controversy to discourage the ABC from proceeding with its planned axing of the part-time presenter’s TV program (see ‘ABC axes Abdel-Magied program one month after controversy’).

I expect there may now be some consternation within the ABC as to whether the ‘axing decision’ could be spuriously linked to the consequences arising from the Anzac Day controversy, particularly given the potential weight or perceived influence attached to the ‘discrimination’ comments made by the president of the Australian Human Rights Commission, while appearing before Senate estimates (see ‘Gillian Triggs warns of increasing sexist attacks against woman in public life’).

A check of Hansard (see ‘Commonwealth of Australia – Senate – Legal and Constitutional Affairs Legislation Committee’) reveals that Professor Triggs stated ‘My concern has been the rising level of discrimination against Muslims in Australia and, sadly, in particular, Muslim women wearing the hijab’. One wonders whether the ABC’s decision to axe Yasmin could be interpreted, construed, seen as, or possibly ‘feels like’ discrimination in some circles. Professor Triggs later went on to reiterate her earlier view that the Anzac Day post was a ‘mistake’ saying ‘Well, again, I think it was a mistake, as I have said. It was followed rapidly by an apology’.

To be clear, I do not condone discrimination and the abuse (as opposed to the fair criticisms) directed at Yassmin in the wake of her social media post. My demurring relates to the virtual trivialisation of the Anzac Day social media post by academics like Triggs, who dismissed it as a mere ‘mistake’ or at worst agreeing ‘that it was a most inappropriate thing to have said’, while the broader community clearly felt deep offense.

Of particular indignity is that it was an honoured Australian (Young Australian of the Year Nominee) who dishonoured and disparaged the memory of fallen Soldiers, on of all days, Anzac Day and I can only extend a sincere apology to our New Zealand partners for the insensitive offense. To add insult, Yassmin has served as a member of the Federal ANZAC Centenary Commemoration Youth Working Group so I cannot be convinced that she did not know exactly what she was doing and I find it insulting and disingenuous to suggest that her ‘post’ should be dismissed as an inappropriate ‘mistake’. Who is really out of touch here?

So, given due consideration to the above, the question remains, how can you call the actions of a media-savvy individual, seeking wider self-promotion by publishing offensive material on a social media platform, a ‘mistake’ when the individual is employed in the media and is steeped in their conventions? What propaganda is this? This was no mistake! 

It is time for people to take responsibility and be accountable for their actions, actions that have consequences. People need to take ownership of their behaviour, ownership of what they say and what they do, particularly when they have the power of the media behind them. Dare I say it, but we need to exercise a little more courtesy, have some empathy and learn to be nicer to one another.

However, if you are going to radically court controversy, then stop playing ‘the victim’ when you get the notoriety you widely seek. Stop hiding behind discrimination as a means of preservation when your provocation goes wrong. Don’t point your finger claiming intolerance at those who ‘call you to account’ or suggest that they are bigots, sexist and racist just because they objected to your insensitive, insulting, disrespectful, intolerant, narrow-minded & purposefully offensive publication.

Don’t stomp on the grave of ANZAC to promote your personal agenda!

Lest We Forget.

26 May 2017

If we are not careful, our colleges will produce a group of close-minded, unscientific, illogical propagandists, consumed with immoral acts.  – Martin Luther King.

 

 

Why Australians Feel Good About Higher Taxes

In last month’s Federal Budget, the Government announced the introduction of an additional tax on the Financial Services Sector, or at least on five of the larger banks operating in the sector. This comes at a time when the Government is on one hand, advocating policies to reduce company tax, while increasing taxes on the other. (So unlike Governments to have contradictory agendas!)

The Liberal coalition Government is ‘banking’ on this new tax levy being more popular than Labor’s failed Mining Tax, which the coalition Government subsequently repealed. This new populist policy is the Government’s attempt to leverage off the creed that all Australians hate banks, apparently because they are well managed global businesses whose apposite profits are too big.

Therefore, the thinking is that the public will be happy if the so-called ‘greedy’ banks are taxed more than other companies and as a consequence, the Government gains a popularity lift from you, the electorate. This is a desperate ‘socialist solution’ by a Government who is supposed to be encouraging private enterprise to grow the economy; no wonder we are confused about what this Government is supposed to stand for!

The Government is taking advantage of the public’s naive ‘bank bashing’ mindset by virtually condoning hatred against a small number of profitable institutions just so they can pass their bias, uncompetitive and oppressive policies unimpeded. The Government is counting on the gullibility of the public who have been conditioned by successive financially incompetent Governments, and the media, to believe we have been ripped off when in fact the Bank’s ‘Return on Equity’ is somewhat moderate compared to many other publicly listed companies (see below).

I keep hearing the media and politicians say that the Banks should pay this new levy and not complain because they (the banks) are so hated and more unpopular than politicians, (if that’s possible). But who are they? Well, ‘they’ is essentially you, whether as an individual shareholder or more likely in your superannuation fund, or if you have a bank mortgage or a bank account, not to mention if you have exposure to any of these banks’ subsidiaries.

Anyone with any relationship, direct or otherwise, with the Banks will pay for this new levy/tax. If there is an additional cost to business, someone pays and in the final analysis, the people who own and deal with the banks will pay the additional tax the Government has conned you into feeling good about.

Let’s face it, I don’t think that getting a dividend yield of 6% as a shareholder of a Bank is an ‘obscene’ return, in fact, far from it given the ‘capital risk’ you carry. So this ‘clever’ new policy is only a slick revenue grab, that somehow ‘the constituency’ has been duped into thinking they’ll love!

If Government-cultivated ‘hatred and loathing’ is driving a prejudicial policy agenda in Australia, where we single out and indiscriminately penalise certain groups or sectors in our community; then we are on a slippery totalitarian slope with despotic overtones. 

Another consideration in this subterfuge is the randomness of the policy, there is no reasonable basis for the new tax. Apparently, the Australian Government supports a Fair Taxation System unless the ignorant decide the industry is so unpopular that it justifies a discriminatory socialist policy. If you implement a new tax just because you make a large profit, then why not apply the tax to all companies that make larger ‘returns’ than the Banks do (like miners BHP) and if not, why not? Would that not be a reasonable and equitable basis to apply a tax, with a just ‘outcome’ for all Australians under the ‘Fair Taxation System’?

I have scanned the various market segments and randomly identified 14 companies with a higher ‘Return on Equity’ (RoE) than the five banks targeted. Should companies like those listed below also be identified as ‘bad profitable corporate citizens’ to be singled out and penalised for being commercially viable?

What is going on in Australia when you virtually need to apologise for being successful and profitable? Talk about the tall poppy syndrome; its economic emasculation of epic proportions! If making a profit is so obscene and offensive that we need to disincentivise success, then it is a crippling legacy to pass on to the youth of Australia: a future of limited opportunity courtesy of a pathetic, lazy, short-sighted, spiritless and tired leadership.

Return on Equity:

  • Amcor 86.9%                          
  • CSL 41.5%
  • JB Hi Fi 37.8%
  • Woolworths 32.1%
  • Rea Group 28%
  • Sirtex Medical 27.7%
  • Telstra 26.8%
  • McMillan Shakespeare 23%
  • ResMed 21.2%
  • Breville Group 20.4%
  • Flight Centre 20%
  • Ainsworth 18.2%
  • BHP 16%
  • Corporate Travel 16%
  • CBA 15.7%
  • MQG 14.2%
  • WPC 13.2%
  • NAB 12.2%
  • ANZ 10.1% 

‘He knows nothing; and he thinks he knows everything. That points clearly to a political career’ – George Bernard Shaw

3rd June 2017

Global Financial Crisis – When Will We Do This Again?

As we approach the ten-year anniversary of the Global Financial Crisis (GFC), I thought I’d get in early with a few ruminations, before the experts who didn’t predict the crash write their moot editorials.

I keep reading about the GFC and the predictable question: will it happen again? Well, history has the answers. It was only 20 years prior to the GFC that the US faced the ‘Savings and Loans Crisis’ where the failure of bureaucratic ‘regulatory and enforcement agencies’ ended up costing $160 billion, predominantly funded by taxpayers. Even the learnings from the 2001 Enron scandal were quickly forgotten; where corporate fraud contributed to the company filing for an approx. $63 billion bankruptcy.

When you look back at our historical track record, you realise how heedless we hominids are, as we continue to allow the same fraudulent behaviour to reoccur. Perhaps the answer or reason WHY can best be explained with a closer examination of the judicial system and incarceration rates. There is no doubt that white-collar crime pays. The financial sector’s punishment for transgressions seems to be highly remunerated senior executive positions in government, where they get to set the future policy agenda and protect their ill-gotten wealth by recommending taxpayer-funded bailouts.

So, let’s look at what happened ten years ago and compare it to where we are at now, ask if anything has materially changed and wonder who will pay for the next round of bailouts.

The catalyst for the GFC started with the misguided concept that pretty much everyone should be able to afford a home, much like the present ‘Housing Affordability’ debate in Australia, about how to interfere in free markets to artificially influence affordability. The consequences were higher prices, with exuberant growth generated in the housing sector creating a false and inefficient market which inevitably collapsed with a subsequent correction (as free markets do).

The so-called crisis in the subprime mortgage market in the US was fuelled by readily available and cheap credit, honeymoon deals and high-risk loans where financiers massively misrepresented applicants’ capacity to repay loans. Again, a regime existed where there was a complete lack of regulatory compliance and enforcement, allowing Financial Institutions and Banks to lend unabated, fuelled by commissioned staff who were immorally motivated by their employers; employers who set the wrong Key Performance Indicators (KPIs), the wrong remuneration models and therefore unsurprisingly, we saw the wrong behaviour.

Meanwhile, the Financial Institutions and Banks were generating obscene profits as they actively promoted high-risk lending, but without having to carry the associated risk. They simply shifted the risk to the mortgage insurance companies, who covered the banks against loss in the event of default. The rot set in when the insurers collapsed, with a central insurance player in the US eventually requiring a taxpayer-funded bailout, reportedly around $180 billion.

Financial Institutions and Banks had to find creative ways to get these junk loans off their books before they defaulted. Their solution was to bundle and package up these rubbish mortgages and sell them off as defensive or low-risk income investments i.e. monthly income mortgage funds (backed by property, what could go wrong?)! The target market was conservative investors and retirement/pension funds, looking for a regular monthly income stream.

The question is: how do you convince conservative investors to buy junk mortgages i.e. how do you ‘window dress’ high-risk mortgages as low-risk income investments? This deception could only be perpetrated with the assistance of a complicit rating agencies industry, who sell the desired credit ratings for the right price and that’s exactly what the rating agencies did. They rated ‘junk’ as ‘investment grade’ effectively giving licenses to Financial Institutions and Banks to credibly disguise and sell rubbish investments in the open market.

They knowingly ripped off consumers, because they knew these instruments would fail when the underlying loans inevitably defaulted. This was an orchestrated fraud and collusion on a scale never seen before! If the rating agencies’ actions were not fraudulent, then they were certainly complicit, yet somehow they managed to deflect responsibility and have never been held to account. Keep in mind that these agencies are responsible for rating the sovereign risk of our country! Why has their behaviour gone unchecked and how do they get away with it? Why is there still no meaningful regulation around rating agencies?

These rating agencies continue to control and influence the investment and advisory industries and, as a direct consequence, investor behaviour. How can they possibly be trusted when investment fund managers are still buying favourable ratings for a negotiated price? As a consequence, investors are still losing money on underperforming investments, while the money managers and credit rating agencies never lose. The credit rating system is corrupt and totally ineffective as a management or due diligence tool for consumers to gauge the worthiness or suitability of any given investment.

The next level of greed and deception perpetrated by the Financial Institutions and Banks was to orchestrate additional profits from the junk mortgages they sold to retail & wholesale investors. How? Manufactured products! A number of these Financial Institutions and Banks were so confident that the bundled junk investments they sold would be worthless, that they took out insurance on them failing (derivative positions) and then collected when they imploded.

So when the loans defaulted, they collected twofold, once when they sold the junk product and later when it failed (by trading their derivative position). Talk about benefiting from the misery of others when you can make twice the money from ‘engineering failure’ than you can from honest trading and all at the expense of the consumers who believe that their governments have the right governance, compliance and enforcement controls in place to protect them. We poor misguided citizens!

This is what happens when our trusted Financial Institutions and Banks are left unchecked as government regulators fail to enforce the law. What is the value of paying thousands of ineffective bureaucrats for not holding the Financial Institutions and Banks executives to account, perhaps because most of these executives are now bureaucrats themselves? What a great system: governments act as enablers for institutional theft and then use our taxes to fund the corporate bailouts.  How do we keep losing the same dollar twice? We need to improve regulation but more importantly, we need government to start enforcing the current laws. (See Why Are Government Regulators Not Working?)

How is it that a corporation can go bust after losing our money and then expect taxpayers to bail them out because they were ‘too big to fail’? If a corporation is ‘too big to fail’ then governments should legislate to unwind conglomerates and reverse the ‘bigger is better’ trend, because it is not!

I believe change is urgently needed if we are to minimise the risk of future financial losses at the hands of institutions. Start, as I have emphasised above, by dealing with credit rating agencies. It’s a flawed model and there needs to be a mechanism in place to hold them accountable for their performance i.e. some transparency around the accuracy and value of research, rather than just being allowed to sell a rating without recourse.

Favourable credit ratings give Financial Institutions and Banks, fund managers and stockbrokers a licence to print money, even when the underlying investment fund, equity or product, fails to meet the performance expectations as set out in the rating agencies initial report. All these ill-gotten profits are funded from money lost by investors who were given misleading or inaccurate information right from the start.

Secondly, there needs to be a closer look at how Financial Institutions and Banks use mortgage insurance companies. Basically every loan approved conditional to mortgage insurance means that the Financial Institutions and Banks recognise that the risk is too high to carry on their balance sheet. So the Financial Institutions and Banks subrogate control and responsibility of the ‘loan default’ process to the insurance company. That leaves the borrower without any capacity to negotiate with their financiers, who are now beholden to the insurance companies.

Unlike banks, insurance companies do not have the same legislated capital reserves, so what are the potential risks in the event of rising defaults? What is the cost of making housing more affordable in the short-term when there is no long-term contingency plan when interest rates and unemployment rise? History tells us that if the housing sector is artificially stimulated, then you can expect with a high-degree of certainty that a correction is a foregone conclusion. It’s just a question of whether you’ll be one of the many little people who end up bailing out the big end of town so they can maintain their hedonistic and privileged lifestyles.

I keep hearing that banks are bastards; well wait until you have to deal with insurance companies if your loan defaults! What is the point of taxpayers funding government bureaucrats for governance, compliance and enforcement controls, when they are plainly not doing their job to prosecute the laws that were meant to protect consumers, not Bankers? Finally, if a corporation is ‘too big to fail’, then start legislating to enforce demergers. 

23 April 2017

“I sincerely believe… that banking establishments are more dangerous than standing armies”. Thomas Jefferson

Housing Affordability- Is it Harder Than Ever to Buy a Home in Australia?

There seems to be an emerging trend in Australia where there is an increasing expectation for government intervention in our free market economy, where supply and demand rationally determines the variable factor ‘price’. On a macro basis, the present economic environment seems like a perfect recipe for growth: historically low inflation & interest rates, credit/finance readily available, generous government subsidies, favourable exchange rates, relatively low unemployment. But it’s still not working as the economy is stalling, barely managing a growth rate of 1%, which is insufficient to support full employment for this year’s school leavers. It is clear that the low-interest rates are no longer an effective Reserve Bank lever to stimulate growth in the economy, so what are politicians to do?

With the Government having significantly closed the tax incentive for individuals to SAVE, (see ‘Age of Entitlement – Unsustainably Extended’), much of the economic investment has shifted to ‘Negatively Gearing’ property (a tax incentive for domestic investors who BORROW) and the Reserve Bank of Australia (RBA) is now deeply concerned that the housing debt is too high ($2 Trillion or 1.2x GDP) and a risk to the economy, particularly given the critical sensitivity analysis and impact on the economy when interest rates inevitably rise from their current low level of 1.5%. The RBA understands that the economy is fragile and there is nothing more it can do other than rely on a paralysed Government to act, by either further stimulating the economy or removing the red-tape barriers so businesses have the incentive to expand and grow.

Like the economy, wages growth has stagnated (public sector 0.6% Dec Quarter & 0.4% in the private sector) living standards are falling and the trouble for government is that they have few options to stimulate the economy, as they have literally blown their currency with debt now close to half a trillion dollars and the budget bleeding a cash deficit of approx. $200,000,000.00 per day. Governments are relying on businesses expanding, ‘dreaming’ that in the tradition of the classic Australian movie ‘The Castle’, we could survive by continuing to ‘dig holes’. But the heavy regulatory and Government control and intervention in commerce mean that the environment is not conducive for business to invest for growth.

Now politicians want to intervene by changing ‘Negative Gearing’ in the hope of improving housing affordability by removing buyers from the market. However that will only make room for more foreign investors, so as an alternative why not remove some of the bureaucratic restraints and bring more supply to market to help reduce the cost of housing.

In fact, on a micro basis how hard is it to actually buy a house today? ‘It’s ‘never been harder’ is the mantra, but is that true? This left me questioning this assumption: I concluded that it’s not harder now, it’s always been hard. It comes down to ‘what you are prepared to do’ and ‘what you are prepared to do without’ that makes the difference. There is no quick shortcut solution to circumnavigating what’s hard; otherwise it would be easy. We need to stop using ‘too hard’ as the excuse rather than the reason for not trying. So what are the facts?

Australia is now building the world’s largest homes in suburbia with an average floor size approx. 243 sq. m, the highest floor space per capita in the world. This is an increase of 50% from approx. 162 sq. m 30 years ago. Over that time the size of the household has progressively decreased, from an average of 3 members down to the present 2.5; that is a increase in living area per person of 80%.

The current low-interest rate environment has had the effect of increasing demand and therefore influencing house prices, but overall the lowest interest rates in over 50 years is extremely beneficial for those who want to get into the market. Compare the current home loan rates of 4% against 17% in the late 1980’s!

In the 1980’s a ‘home deposit’ was a non-negotiable 20% of the purchase price. The only way most people I knew could save for a home deposit, was by holding down a second job at night. It was just what you had to do to ‘get ahead’; we never thought it was hard, it was simply necessary if you wanted to save for a deposit to buy a house.

The biggest headwind to ‘saving’ was that you paid 60% tax on the income you earned on your second job. Back then the highest Marginal Tax Rate was 60 cents in the dollar for income over $35,000. Today the highest Marginal Tax Rate is 45 cents in the dollar for income over $180,000.

Another restriction back in the late 1980’s was that if you had finance approved by the bank, they could only fund a proportion of your requirement on cheaper Home Loan rates and the balance was on a separate consumer loan, with a much higher interest rate. This was probably the last time Australian’s experienced a credit squeeze, when the bank wanted to lend you money, but didn’t have enough funds to advance at home loan rates. Remember this was a time when commercial business lending rates were 22%-25% and when Government regulated existing home loans with a ceiling rate of 13.5%; at the expense of new home borrowers who were forced to pay market rates of 17% at the banks and 18% at Credit Unions.

On top of all that, most banks would not lend 100% against a female’s income, in case she found herself ‘in the family way’. Subsequent changes to discrimination laws meant that home loan repayments could not exceed 25% of an individual’s gross income and 20% of joint gross income (income from second jobs did not count). Loan terms were limited to 20 years with ‘principal and interest’ repayments (no ‘interest only’ loans or 30-year+ terms back then).

Thirty years ago there were no functioning Government subsidies, housing assistance or Stamp Duty relief. There was a first Home Buyers scheme but the bar was set pretty low, meaning that if you qualified for a payment under the scheme, then it meant that your financial position was such that you wouldn’t be eligible for a bank loan. I’m not sure that any Government funds were ever paid under that scheme, certainly none of any substance. It was the old chestnut: Government being seen to be doing something, without actually doing much.

Should we lower our expectations and look more closely at what we can ‘do without’ now in order to save for what we want in the future? Are we living within our means and have we anything to show for our apparent high levels of personal debt? Do you control your finances or are your finances controlling you? Having a long-term plan is important if you intend to commit to a 30-year loan term. These issues can also be impairments to entering the housing market.

I’m not saying that it’s easier now. Most of the key determining criteria generally remain unchanged i.e. there has always been a correlation between incomes and house prices. I don’t know if the problem is because ‘marketers’ have succeeded in making us all victims of ‘the Jones’ syndrome’, conditioning us to believe that we need bigger houses for fewer people per household.

Perhaps making the family home ‘exempt from capital gains tax’ is the problem, as the tax concession is encouraging excessive investment in single non-productive assets. I’m not omniscient, but what is certainly true is that credit is now far more readily available, which increases demand and puts upward pressure on real estate prices, simply because there are more buyers competing. Supply, on the other hand, is closely controlled e.g. land release, but I can’t help thinking that the most significant contributing factor or barriers to home ownership today is the doubling of the area under roof line over the last three decades and the impact that has had on prices.

I acknowledge that there are great difficulties getting into the market in certain areas where there are concentrated pockets of demand which attract all the media noise, but I’m not certain it’s a national crisis. While we might all ultimately like to live in an ‘advantaged area’ with a good postcode, the reality is that the location ‘entry point’ is dictated by what your budget can sustainably afford. Perhaps the solution can be more difficult than the actual problem if we let it. Remember, if you are striving to achieve an ambitious goal, the ‘hard bit is having the self-discipline and commitment to achieve it!

It always seems impossible until it’s done – Nelson Mandela

25 February 2017