So, I made a wordcloud for this blog. Notice how the biggest and third biggest words are ‘mortgage’ and ‘mortgages’. The 2nd word is market. haha I guess I may be a taaad capitalist.
The first non-boring word: Now.
Oh dear.
My law student friends will already know that the UK is replacing its court of final appeal, the Judicial Board of the House of Lords with a new court. What they will not know is that America is claiming this as a victory for themselves: see Wall St Journal article here: http://online.wsj.com/article/SB125573382497890937.html?mod=rss_whats_news_us#
You see as Justice Breyer (Associate Justice of the United States Supreme Court, I have to remind you cause he’s the forgettable one) says, “over 200 years or more of our Supreme Court history, the cases are filled with references that show our law is based on English law. They are perhaps taking a leaf from our book.”
You see, the UK decided to rename its highest court to the Supreme Court of the UK. Apparently Americans thought that sounded too similar to the Supreme Court of the US, and have pre-emptively decided that they were copying the Americans. Don’t worry about the fact that the highest courts in the former British Empire are also called the Supreme Court (Australia being an axception,our state courts were already called Supreme Courts and we thought it would be silly to have both our federal and state courts called the same thing).
They also proclaim that this is following the American-style separation of powers. Its not really important that the Westminster Principle of Minsterial Responsibility still ties the executive and the legislature into one branch. Nor is it important that the UK only split its legislature and its judicature because it joined the EU, and the EU Human Rights Charter forces them to split the two. Nor indeed is it important that the very notion of separation of powers derives from Baron de Montesequieu’s (somewhat short-sighted) observations of the UK’s system of government.
And let’s not also forget that the whole change is remarkably controversial because, as critics all say, the UK risks having a completely dysfunctional system of government like the US where the judges and the legislature vie for power.
However, more amusingly, this article also reveals the deep shame Americans feel about splitting off from the Empire in the first place. Dangit, they say, we should have done it peacefully like the Australians, the Canadians, the South Africans, the New Zealanders… all this guilt. Maybe that’s why, as the WSJ notes, the SCOTUS still regularly cites English precedent. Scalia J cited 10 UK cases in one 2008 decision. One the left, Stevens J cited English decisions going back to the Magna Carta in a 2004 Guantanamo case. On the other hand, the UK courts rarely bother consulting American cases. Funny that.
Hmm… so I looked at the statistics for this site today, which I don’t often do. One observation: you are love scandals and intrigue. Balanced, fair reporting just irks you.
My post “lawl subprime” was badly written – I didn’t edit it in the slightest before posting. But it was scathing, sarcastic and bitter. My post “Balance” was well-written (at least by my very mediocre standards). I edited it (a bit). But it was written in a calm measured tone. It also had a very bland title.
The result? The badly written, divisive infotainment post had 6 times as many hits as the factually-based and balanced post. Now I know why Fox News and Keith Olbermann (left-wing anchor on MSNBC) are so popular.
Now, if you’ll excuse me I’m going to buy some shares in News Ltd, and dump my shares in whoever publishes the Economist.
Keith Bardwell JP, a justice of the peace of Tangipahoa Parish in Louisiana, refused to issue a marriage license to an interracial couple: http://www.huffingtonpost.com/2009/10/15/interracial-couple-denied_n_322784.html
Now at first I thought: what an absolute outrage. What a terrible thing to do. This places interracial couples in the same category as second class citizens like homosexuals and transgender “people” who are also denied marriage. And that would never do. If we did that, we would have to come up with some legal gimmickry to make homosexuals third class citizens.
But then I thought again; I calmed down and read Bardwell JP’s statements more carefully. Bardwell JP; Keith, if I may call you that, all is forgiven. As you said “I have piles and piles of black friends”. That really just about settles it for me really. It’s the only argument one really needs. You have many black friends. You are, in your own words “not a racist, [you] just don’t believe in mixing races.” Separate but equal. Seven Supreme Court Justices agreed with you in the landmark 1896 case of Plessy v Ferguson.
But as a judge, Bardwell J gives further reasons, as he rightly should. He does this not to hurt blacks, whom he allows to use his bathroom (wow, what tolerance), but to protect the children of interracial marriage. I quote: “There is a problem with both [black and whites] accepting a child from such a marriage. I think those children suffer and I won’t help put them through it.” Now I must agree. America is the land of opportunity, and we want no American child to be left behind. Every American child has the right to dream that he can aspire to be anything he wants, even president. And no half-caste child could ever be President of these United States.
PS: My traditional disclaimer for the truly stupid. I neither oppose interracial marriage, nor do I encourage making LGBT persons second or even third class citizens. I was merely pointing out the irony of banning interracial marriage when the current President was born from an interracial marriage, and the irony of using arguments rooted in 19th Century logic.
Plessy v Ferguson was overruled by the unanimous decision by 9 Supreme Court Justices in the somewhat more recent 1954 case of Brown v Board of Education. Separate but equal is no longer the law of the land, no matter how much Chief Justice Roberts wants it to be.
To balance out the multiplicity of sarcasm in my last post, I thought I’d add a link to the government’s press release which stated why they were investing in Residential Mortgage-Backed Securities. http://www.alp.org.au/media/1009/mstres110.php
The policy is not as absurd as I previously stated. The government is investing in the mortgage market to tackle the major problem facing Australia’s economy right now, which is competition in the banking sector. The financial crisis has basically crippled or killed most of the smaller financial institutions, since they had less ability to withstand this sudden credit crisis than the Big 4 banks (for various reasons, mostly to do with size and reputation).The Big 4 banks: the Commonwealth Bank, NAB, ANZ and Westpac, on the other hand were wounded but not crippled by any means. (See my last post for a few examples of how they are expanding internationally and domestically).
The Big 4 are now actively stealing market share from these smaller financial institutions. That has obvious negative effects on competition in the long run. Already, we can see the Big 4 banks trying to increase interest rates over and above the interest rates set by the Reserve Bank. They tried it earlier this year, and they look like they’re trying to do it again now. They argue that this is because of the increased cost of borrowing that the banks face. Their argument is based on truth, but they would never have passed them on if the market were as competitive as before. They would have borne the costs themselves rather than passing them on to consumers. They can afford to do it, given their record profits this year. To show you what I mean by a competitive market, look at the interest rates for businesses. They rise with the RBA’s interest rates and no higher. The banks simply absorbed the extra costs.
What the government wants to do is strengthen the smaller financial institutions that used to compete with the Big 4. They often do not source their money from international markets because they lack the reach of the big banks. Instead, they rely on the domestic securitisation market. (Securitisation is where the company which lends you money in the form of a mortgage, packages (or securitises) the rights to collect your mortgage and a lot of other mortgages, then sells that package on the securitisation market). During the credit crisis, all US private label securitisation (ie everything not issued by the semi-government Fannie Mae and Freddie Mac) stopped, and to my knowledge it still has not started up. It was a huge market, and its gone. I imagine that the Australian market has been hit just as hard, though there’s not much public information about it. This being the case, small mortgage lenders like RAMS can no longer afford to package mortgages and have effectively turned into mortgage agents for the big banks. This is the government’s attempt to restart that market. Hopefully it works.
I should add of course, that I still do not agree with this policy. It does not address the various structural problems with the securitisation model identified by the subprime crisis – namely information asymmetries and lack of information flow that allows us to model the worth of mortgages. We rely wholly on credit agencies, which have yet to earn back our trust. Furthermore, even though this is a short-term government investment, it is always dangerous to have your government investing in the market.
Furthermore, this policy alone is not enough to restore competition in the banking sector. The only participants left in the mortgage market are banks and credit unions. They had retail deposits (ie the money you put into the bank) to keep lending out. Companies like RAMS (whose only business was mortgages) are all gone because they did not have those retail deposits to keep them afloat. Measures have to be taken to allow those companies to return (without over-subsidising them and creating another mortgage bubble or creating more unsustainable mortgage lending companies). Other companies exist which do not rely as heavily on the securitised market. For example, the Mirvac AQUA fund is an investor in securitised mortgages. It is being squeezed out by the government (since they are now both competing to buy these mortgages). But AQUA is exactly the sort of institution that the government should be promoting in the long run. It merely cannot buy more mortgages because its share price has collapsed along with the rest of the ASX. Its lower share price means it can sustain less risk, so it can’t buy more mortgages. The government also needs to bring into effect policies which support these kinds of investors (along with supporting smaller banks, credit unions and mortgage originators).
In summary, I think investing in the mortgage market is a good idea, but a dangerous one. It encourages complacency in thinking we have done enough to revive competition in the banking sector. It makes us conveniently forget lessons we should have learned from the American mortgage market, and encourages us to not regulate. We should regulate. That is the best way to reduce systemic risk in the mortgage sector, to restore investor confidence in the industry and it should (if implemented correctly) increase the share prices of all the companies I’ve mentioned. That is restoring competition in the banking sector.
As a proud Australian, I must now gloat at the great position our economy finds itself in. The only developed nation to avoid recession, one of the fastest to enact a stimulus package, yet also one of the best designed. Interest rates are low- but with plenty of room to cut further if we need to. Debt only 14% of GDP, compared to say, 150% in the US.
Yep, we sailed by the subprime crisis preeetty nicely. Turns out, it was because our economy just plain sucked before. We only have four banks of any real note (unlike the US, where 100 banks have collapsed in the last year), so we were somewhat keen to stop them merging and buying each other out. It’s called the Four Pillars policy. By this delightful stroke of luck, this stopped our banks from becoming big enough to compete internationally so they didn’t bother to invest in all those innovative thingy-gummys what destroyed our global economy.
What’s more, we didn’t even bother to create these innovative thing-gummys in our own economy. We didn’t have subprime loans. You see, we have no poor black people, so we don’t have a moral imperative to create a loan system to ensure they can buy houses. Besides, there are so few houses due to poor development plans, even middle-class white people can’t afford a new house on their own. Only those nasty hard-working Nips and Chings (stealing our jobs) in highly paid accounting jobs can. Nor did we bother securitising the loans much, we did a bit, but we’re sort of lazy and couldn’t really be bothered. Possibly the name (Residential Mortgage Backed Securities or RMBS) put our bankers to sleep. We didn’ have a sexy name like Fannie Mae to keep us enticed. Nor the equally sexy government subsidies. The banks simply collected the loans themselves. How dull.
Well my friends, to use a navy analogy like my friend John McCain, I would like to point out to you, my friends that our Prime Minister Kevin Rudd is like a captain sailing a ship through treacherous reefs. On the left, he sees Japan, caught in the stagnant swamps about to be devoured by Charybdis. On the right, he sees the US, who sailed too fast and was swallowed by Scylla. But Rudd has no fear, he orders us to sail full steam ahead and ever faster now that the crags do not visibly stick out of the water. After all, they’re not like icebergs, surely underwater rocks could never dash this ship. (For people confused about mythological allegories in this post click here)
Australia has sailed past your other nations and is reaching the future. Our government is sexing up RMBS by investing in them to encourage securitisation. Our competition policy has been unofficially loosened to let our banks compete internationally. We all know how ANZ which has been chafing to enter Asia has now bought RBS’s retail assets in Asia. The Commonwealth Bank snapped up Bankwest, one of the more ambitious smaller banks. Westpac snapped up St George (it was only the 5th largest bank, so of no concern. After all it is called the Four Pillars policy). NAB is busy stealing market share from the credit unions and the other small players now that they have a huuge rights issue and government guarantees on their deposits.
Yep, all is well in Australia. We’ve even started encouraging low-doc loans to small businessmen. You see, though we don’t have black people to pity, we do have heroic small businessmen. They are the entrepreneurs who bring risk and reward to our economy. But sometimes risk is too much for them – 90% of small businesses fail in the first year alone. So we want to help them borrow money for their houses, cause no bank would want to lend to someone whose business will most likely fail next year. That’s discrimination, people. It’s all there in the SMH article, though it wouldn’t want to use such a discriminatory word as “low-doc”. That means “low documentation” and it brings up all these nasty concerns about the low documentation in American subprime loans given out to people with No Income, No Jobs or Assets (NINJAs). Small businesspeople are different. They have all these things. They just won’t have them in a years time when they have to repay their mortgages.
Our Australian government would never, ever be so foolish as to invest in subprime mortgages like Fannie and Freddie, the US semi-privatised organisations. Nope, all is well in Australia. After all, Odysseus survived the Straits of Messina (and he was such a fortunate, god-blessed man), why can’t we?
PS: Sometimes people can’t tell I’m being sarcastic, even when I make it really obvious. Here are my actual views.
1) I do not think that only black people are poor in America.
2) Securitisation is a good idea… once you implement institutional reform to ensure that information asymmetries are balanced and that incentives are aligned with efficiency. That’s hard to do when the government is so deeply mired in the process by being both an investor and the one issuing the securities, as it is in the US (though its even harder there since the regulator is half-privatised and therefore owned by the bankers it regulates). As I’ve argued in the past, even subprime loans are a good idea because they encourage people who ordinarily can’t afford houses to enter the property market. But let’s fix the lack of land before we start encouraging people to buy houses? Yes? Maybe? Hmm…
Hoc memorandem in Latinem solus scribatus est. Amicus meus, Ionathan Capitus, hoc libellum memorandem Latinis non habere dicet. Ergo hoc scribo.
A friend of mine sent me this article which purports to mathematically study whether female judges are ‘better’ at judging than male judges.
http://www.slate.com/id/2231166/pagenum/all/
It’s an interesting read, but somewhat long so here is the summary:
So what do I think? Well, I think as an Australian I need to step back and realise how vastly different the US legal way of thinking is from countries which respect the rule of law and precedent. Secondly, before I wade in and point out how stupid using statistics to measure judicial quality is, I should firstly point out that Americans love to do this. Wikipedia lists the dissent rate of every single justice of the US SC, not merely (as it does for the HCA, Justice Kirby and Callinan’s dissent rates).
I’m somewhat at a loss with what to do with these results. If this were in Australia, I’d just tell you how stupid it is to say that ‘independence’ is a value one should value in a superior court justice. One should think adherence to precedent is far more important. Blaming statistics is not good enough – a far better marker of quality is not how widely cited you are, but how widely followed you are. I know there’s a study out there that says that the California SC is the most widely followed of all the state SCs. But this is America, and we should notice that the marker is not independence from other JJ on the same bench, but other JJ on the same bench appointed by the same side of politics! Which means they could actually be more ‘independent’ in the true sense of the word… following the law and laying it down as it should be. Or, it could mean that they completely ignore what the law says and that it is the male JJ who actually follow the law. The maths does not help us at all…
But then again, what else should I expect from Eric Posner (the fourth author on the list), whose father is Judge Posner of the Chicago Circuit Court of Appeals. Posner J of course is famous for overturning precedent where it does not conform with his mathematically elegant economic theories.
PS: I should add. I neither think women are better nor worse judges than men, though I of course have no evidence to back up this claim. I merely object to giving consideration only to women when appointing someone to a position. If there are roughly even numbers of male and female judges, all of roughly equal quality, then how come the entire shortlist of some 10-15 judges were all women?
Judges should be like umpires, declaring the rules as they stand. They should not be batting for either side. In that vein, here is definitive proof that Sotomayor J is not an umpire:
In other news, here is a picture of Obama having the least fun anyone has ever had around tequila (courtesy of Rachel Maddow’s twitter):
Despite our apparent similarity in political beliefs, I’m not entirely sure of the last time I wholly agreed with Malcolm Turnbull on any matter. But, though he has been variously criticised for laying down a party room ultimatum this week: “Agree with me on climate change, or I will resign”, he is entirely correct, both from a party political perspective, a political perspective and more importantly, a public policy perspective.
Turnbull cannot lead a party that will not follow him. To put it less glibly, the Australian people will not follow a man who cannot even lead those he ostensibly leads. Turnbull has been criticised for being insufficiently moderate (as Nelson was) and kow-towing to the Right faction of the Liberals. This is his Last Stand, and his way of showing us that he is the intelligent social progressive that he was once known for being.
Let us not doubt, even if Turnbull wins next week, the ankle-biters will keep nibbling away. But this strengthens his hand. He is shown to be a man of courage and determination – though we knew this before, he has shown it in the most public way possible. It weakens his opponents by casting them into the light, and ties them to a losing strategy.
But more importantly, Turnbull is making the right decision from Australia. Climate change regulation is inevitable. With the political winds blowing as strongly as they do, it cannot be avoided. What is best for business and the economy in this landscape is to provide certainty. It will be grossly uncertain for Labor to bring in a Climate Change Act now, if the Opposition threatens to repeal it in 2010 if they get elected. That means that, as Turnbull says, the LNP must contribute to the negotiations in the Senate now over what shape the bill will take. They must not let this critical legislation be determined by a dyslexic idiot, a one-issue independent and a bunch of pinko socialists.
What needs to be done is this – ensure that our climate change bill will easily transition into whatever framework the world decides next year. If this is done, then the system should stand up well for two reasons:
Firstly, no matter what shape the regulation takes, it allows businesses to plan around it. At the moment, noone knows at all what the future looks like. How do you make major investment decisions not knowing if regulation will come and change it? How do you build a new coal power plant, or even a solar plant, not knowing if your returns on equity are high enough? Once the regulation is locked in place, you can alter your plans around it. You can constrain the size of your plants, or make them more efficient. You can adopt carbon offset programs.
Secondly, from the perspective of the economy, a carbon credit system (in a frictionless world) causes no loss. The loss of the coal plant operator is the gain of the energy efficient company who sells his excess credits on the market. The only loss is if the energy efficient company is less economically efficient, and deadweight loss is endured on that account. (This is no small problem either – some of our most profitable export industries are energy intensive, so de facto our other industries will be less efficient.) I was never really persuaded by the ‘green workers’ argument. You need far less people to operate a solar plant than a coal mine. But, depending on how your ETS is structured, the ‘energy efficient company’ I referred to earlier need not be a highly speculative alternative energy source. It can simply be an ordinary business which is more efficient than any other company in its industry. It can even be a coal plant which is more efficient than other coal plants.
The most important gain from having a comprehensive ETS is that it places Australian businesses in a better position to transition into a global ETS world next year. The EU trading scheme was not built with a transition mechanism in mind, it merely exists. An Australian system designed with that in mind, and exerting middle-power diplomacy can reap much higher benefits for Australian business than the do-nothing and wait approach which reaps mere short term benefits of a year of higher exports.
