Janet Collins
Billy MGravy Train for the Banks
September 18th 2008 12:12
If you want to run a business and guarantee success – or at the very least survival – choose a business that in the worst case scenario, if you go under so does everyone else – globally. That is the message that is coming out of the United States recently.
There was a line that financial planners used to say quite often as a joke. It went like this “heads you win, tails I lose your money”. It was often said in jest but it could not be truer of the finance industry of late.
The bursting bubble started with two American household name institutions, Granny May and Freddie Mac, companies I had never heard off until recently. In fact, the names alone conger up an image of small, local and friendly companies but aren’t. They are well established institutions in the US and their demise would have national ramifications. So what happens? In contradiction to the whole free market philosophy, the US Government steps in to keep them afloat.
Then it was Merrill Lynch and then Lehman, This week it is the trillion dollar insurer AIG (not to be confused with our own IAG). Merrill Lynch and Lehman weren’t so lucky but had AIG gone under, the global repercussions would have been unsustainable. So again, the US Government steps in to help.
The reason for these rescue plans is obvious. The Government has no choice but the irony of the story could be quite funny if it weren’t to jeopardise the entire global economy. These doyens of capitalism are probably the staunchest objectors to any sort of government intervention at all – until such time as they are in trouble.
Wasn’t it not all that long ago that petroleum giant, Enron went belly up, leaving a trail of broke investors in their wake? Institutions and superannuation funds too had invested vast amounts of money in the company only to see it disappear. And this was in the supposed good times.
I remember the regulations that were supposedly made to stop this happening again. Whether it is the regulations that are at fault here or the monitoring of them is not really all that clear. What is clear is that these corporations have been engaging in business arrangements that were bound to fail in the event of any slight adjustment to interest rates or the global economy.
In Australia too, it was not long ago that many here saw their investments eroded away. Remember the demise of HIH, FAI Insurance and One Tel. Of course, some of the executives of these companies ended up in jail, some didn’t. Many unpaid creditors and investors did suffer immensely but only after these fall outs did our government legislate regulations to prevent such fall outs happening again.
Can regulations keep up with the money market though? Can they be monitored closely enough? If a nation such as the United States with all its resources has not the ability to keep these corporate giants in control, how does a nation such as Australia do so?
I think we all know that this isn’t the end of it. Corporate skeletons are going to be coming out of closets everywhere.
It does remind me of something I heard someone say a few years back. I think it was Senator Edward Kennedy but I can’t be sure. It was that Americans were being asked to pay for the party they didn’t go to.
How true!
There was a line that financial planners used to say quite often as a joke. It went like this “heads you win, tails I lose your money”. It was often said in jest but it could not be truer of the finance industry of late.
The bursting bubble started with two American household name institutions, Granny May and Freddie Mac, companies I had never heard off until recently. In fact, the names alone conger up an image of small, local and friendly companies but aren’t. They are well established institutions in the US and their demise would have national ramifications. So what happens? In contradiction to the whole free market philosophy, the US Government steps in to keep them afloat.
Then it was Merrill Lynch and then Lehman, This week it is the trillion dollar insurer AIG (not to be confused with our own IAG). Merrill Lynch and Lehman weren’t so lucky but had AIG gone under, the global repercussions would have been unsustainable. So again, the US Government steps in to help.
The reason for these rescue plans is obvious. The Government has no choice but the irony of the story could be quite funny if it weren’t to jeopardise the entire global economy. These doyens of capitalism are probably the staunchest objectors to any sort of government intervention at all – until such time as they are in trouble.
Wasn’t it not all that long ago that petroleum giant, Enron went belly up, leaving a trail of broke investors in their wake? Institutions and superannuation funds too had invested vast amounts of money in the company only to see it disappear. And this was in the supposed good times.
I remember the regulations that were supposedly made to stop this happening again. Whether it is the regulations that are at fault here or the monitoring of them is not really all that clear. What is clear is that these corporations have been engaging in business arrangements that were bound to fail in the event of any slight adjustment to interest rates or the global economy.
In Australia too, it was not long ago that many here saw their investments eroded away. Remember the demise of HIH, FAI Insurance and One Tel. Of course, some of the executives of these companies ended up in jail, some didn’t. Many unpaid creditors and investors did suffer immensely but only after these fall outs did our government legislate regulations to prevent such fall outs happening again.
Can regulations keep up with the money market though? Can they be monitored closely enough? If a nation such as the United States with all its resources has not the ability to keep these corporate giants in control, how does a nation such as Australia do so?
I think we all know that this isn’t the end of it. Corporate skeletons are going to be coming out of closets everywhere.
It does remind me of something I heard someone say a few years back. I think it was Senator Edward Kennedy but I can’t be sure. It was that Americans were being asked to pay for the party they didn’t go to.
How true!
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Comment by colocountry
You are remarkably restrained in your aghastment at the frailties of the American financial overseers of all things financial. The Australian model would not have let that happen. I do remember studying the perfect American system of surveillance of companies even vaguely straying against anti-trust legislation in the 60s! The repercussions were immense and swiftly so!! How can we now be accepting of a contract that is five or six times removed from the original dodgy loan?? I remember my wife and I trying to get a loan of $23,000 in 1976 when we had $2,200 of our own. The sanctimonious prick from the Commonwealth Bank suggested that we were a bad risk because we were Catholic and my wife would probably become pregnant!! I've never forgiven them...but perhaps they had a little right on their side.
Col
Comment by colocountry
You are remarkably restrained in your aghastment at the frailties of the American financial overseers of all things financial. The Australian model would not have let that happen. I do remember studying the perfect American system of surveillance of companies even vaguely straying against anti-trust legislation in the 60s! The repercussions were immense and swiftly so!! How can we now be accepting of a contract that is five or six times removed from the original dodgy loan?? I remember my wife and I trying to get a loan of $23,000 in 1976 when we had $2,200 of our own. The sanctimonious prick from the Commonwealth Bank suggested that we were a bad risk because we were Catholic and my wife would probably become pregnant!! I've never forgiven them...but perhaps they had a little right on their side.
Col
Comment by Janet Collins
The Social Critic
Janet Collins Blog
The other day I was in my local bank - one of the big four - and there was a textered hand-written sign saying "Home Loans Approved in 60 Minutes". Isn't that what got them into the trouble anyway?
Janet
Comment by colocountry
It seems that my wife and I may have been born in the wrong era. Although, last week we paid off a significant part of our loan and now can buy all those luxuries that we didnt contemplate for the last 30 years of our marriage. I intend to buy a slate snooker table and set it up as a 1930's guys den. I can do that now but i remember well the tough times when we both went without to make sure that the kids' needs were met. Ireland and Scotland next year are on the serious agenda We may even venture a 'none too shabby' cruiser in the bay off Dubrovnik!! We dont apologise for that but are thankful that the Australian banking system is reliable enough to reward us
Col