Tuesday 26th of November 2024
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economic rationalism .....

economic rationalism .....

Oh ye of little faith - a little pricing power causes wholesale abandonment of confidence in markets to sort out supposed hubris. So much for a robust free market economy.

The bank mania sweeping Canberra, whipped along by the usual populist commentaries, is starting to take on bizarre proportions as the two major parties compete to sound the most interventionist and to display the least confidence in the market mechanisms. The outbreak of posturing by the Australian Competition and Consumer Commission isn't a good look either.

The CBA's 45-point mortgage rate increase and the big profit numbers from all the banks have combined to unleash a wave of largely irrational bank bashing not seen since Ben Chifley was trying to nationalise them.

Yes, the absolute number of the big four banks reporting $21 billion in combined profits is certainly big - but so are the banks. Their return on equity is less than the likes of BHP, Woolworths, Telstra and plenty of others.

In any event, with one caveat, if the big banks' big profits are too big, it creates more space for the existing competition to grow and would encourage new entrants into the market as well.

That's what happens in business.

If the banks were really making excessive profits, the overlooked competitors in the form of credit unions and the remaining mutual building societies would start creaming it, the industry super funds (ME Bank) would plunge further into the business and the happily wealthy Asian banks would be tempted to expand here.

Bank mania abandons market faith

another-one in the goolies .....

As usual, the lowing herd of economists got it wrong yet again on the Reserve Bank's Melbourne Cup day interest rate rise.

Of the few commentators I bother to read any more - and that's very few - only the Herald's Ian Verrender predicted that rates would go up. For the rest, you would have done just as well poring over burnt chicken bones or consulting Madam Zelda and her crystal ball. Why do they still have jobs?

This month's gong for exemplary greed goes to the Commonwealth Bank (profit: $6.1 billion), which rushed, with indecent haste, to shove up its loan rate by 45 basis points, almost twice the Reserve's hike. The CBA's chief executive, Ralph Norris (pay packet: $16.2 million), was not available for comment, leaving it to a minion to spout the customary pious blather about narrowing margins and the high cost of borrowing overseas, blah blah.

Westpac (profit $6.3 billion) ran a close second for nastiness, with its boss, Gail Kelly (pay packet: $10.62 million), admitting on Wednesday that the company would shed more staff over the next two years. All this bank bashing, she said, was just ''misconceptions, myths and assertions''.

For bare-faced arrogance, though, it is hard to top the chief executive of the ANZ (profit $5.1 billion), the pink and pinguid Mike Smith (pay packet $10.9 million). Arcing up over Joe Hockey's nine-point plan for bank reform, Smith described it as a '' personal vendetta'' and ''pure populism at its very worst''.

''Joe Hockey should take some economics lessons from Peter Costello and Malcolm Turnbull rather than bloody Hugo Chavez,'' he huffed last week.

Smith, perhaps, has been taking insolence lessons from Richard Fuld, the failed CEO of the collapsed Wall Street financier Lehman Brothers.

For all the whining from the Big Four banks (total profits: a record $21.6 billion), in fact they are a protected species marching lockstep in a cosy oligarchy. When the global financial crisis saw the non-bank lenders swallowed up, the big banks found themselves in the happy position of controlling 90 per cent of Australia's home lending and 75 per cent of business loans.

They stick up rates and gouge for fees and charges for the same reason that dogs lick their testicles: because they can. Neither the Reserve Bank nor any government, Labor or Coalition, has the power to stop them. And in a free market, nor should they.

The answer is to inject real competition into the system. You bust up the oligarchy by picking up the suggestion from David Murray, the boss of the Future Fund, that Australia Post be licensed to offer retail banking services, including ATMs.

That might give Norris, Kelly, Smith and the NAB head honcho, Cameron Clyne (pay packet: $10.2 million), a few sleepless nights. As a former Commonwealth Bank boss, Murray probably knows what he is talking about.

Mike Carlton