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Many people voted for the Greens on the theory that, despite their economic incompetence, they would never have the power to control Australia’s economic policies. They would target social issues like gay marriage and they would never try to go for tariffs or for economic re-regulation.

Wrong.

Just a few months after the election, the Greens have already gleefully seized upon one issue of crucial economic significance – bank reform legislation. At first, it seemed they were happy to simply support any legislation proposed by the Labor or Liberal parties but this article suggests a much stronger shift in the Green agenda.

‘‘The Greens plan to introduce legislation barring the banks from lifting interest rates beyond official rate rises for two years….

I put a direct challenge to Joe Hockey and to Opposition Leader Tony Abbott to support the Greens in preventing the banks from doing it again,’’ he told the Nine Network today.

‘‘Sound and fury is not good enough. This is hurting people.

‘‘The government should be doing it as well. The Greens are now putting both the big parties on notice.

He said the Greens would amend any government bill or introduce its own legislation to impose a 24-month lid on bank interest rate increases

I have previously explained why banning interest rate rises is dangerously incompetent public policy. Private banks exist to distribute capital by pricing risk. They do that through interest rates – dividing capital between short term and long term uses, between business and residential loans (and other asset classes). To ban interest rate rises is essentially preventing the very rationale for allowing private banks to exist. And it does tremendous damages to the economy. Nimbleness in capital markets is the key factor which allows financial markets to survive global financial crises. It was only by floating the dollar and de-regulating and privatising the banks that the Keating Government staved off the Asian financial crisis.A heavily regulated banking system (as the Greens are proposing) could not have survived the GFC any more than a completely deregulated banking system (as in the US) could have survived. We need an intelligently regulated banking system, similar to what Australia has now.

The Greens’ latest salvo is desperately unhelpful. It speaks in the language of retribution

Senator Brown said taxpayers had backed the banks through the global financial crisis through government guarantees and were now reporting huge profits.

‘‘It’s time they gave something back to the average Australian,’’ he said.

Whilst I don’t disagree with making the banks repay the community, let’s first make sure that what we are doing does indeed help the community rather than making our financial system more fragile and less nimble.

The key to achieving both the goals of reining in bank super-profits and of ensuring strong economic growth is to ensure that the banking sector remains competitive by empowering the ACCC, by taking measures to strengthen smaller banks and remove barriers to entry. In other words, the intelligent measures being proposed by both the Liberal and Labor Parties.

I am deeply disappointed by the Greens on this issue. I had been considering voting for them in the NSW State election, but to even contemplate such grossly irresponsible legislation (and objectively irresponsible legislation) to win votes shows they are completely unfit to hold the balance of power. I guess my vote will have to go to the Democrats. Yay, what a productive vote that will be.

 

 

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