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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…



  1. The guvmint is the only thing that can ensure proper regulation of securities. How else do you do it?

  2. Certainly not by having the government participate in the market its regulating… (see the SMH article, which is quite unhelpfully not highlighted as a link)

    And certainly not by half-privatising the regulator, Fannie Mae and Freddie Mac style.

    I know you’re used to me disagreeing with you on economic issues, but this time I’m on your side 😛

    Wow. That is a long post… hadn’t realised when I typed it lol.

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