AUSTRALIAN ELECTION WATCH - ONE

Leadership Matters: [ this will be a special series based upon the campaigning period for the Australian Federal Election scheduled for September 7 ]. Early out of the blocks is the argument by the Labor Party that they got Australia through the Global Financial Crisis. I have commented upon this contention before, but lets put it to rest. The GFC started as a crisis of trust between banks who had almost exclusively relied on short-term funding, because of the positive carry they got from, say, borrowing at 3%, and buying shares/CDO's/etc which on the face of it was paying 5/6/7% if not more. Whilever the game was going on, the banks were booking good notional profits, provided they could continue to fund themselves. The corporate funding/ short term funding began to dry up in late 2007 and early 2008, and became much more obvious with the collapse of Bear Stearns in February/March 2008.... Much earlier than the Lehmans problems in September 2008. The Australian banking sector did not have the same sized investment banking bets, although they did have some short term funding issues, but principally some offshore funding issues...they relied upon offshore markets for their wholesale funding. As it became obvious that stresses in offshore financial markets were manifesting themselves in reductions in the volumes of money being lent to foreign banks, the Australian banks had to prevail upon both the Reserve Bank, and the investment portfolio of the Future Fund, to take up some of the shortfall in wholesale funding sources. When China decided that the GFC represented a serious threat to social stability, and went on a massive infrastructure spending spree, then Australia's immediate future was as safe as big mining holes-in-the-ground. The only policy steps the Labor Government did was to send out cheques to the lower income earners, who then used this free cash to buy TV's , and to put it through poker machines- one apocryphal story was that some hotels had to hire extra space for all of the cash they had received, and not yet had a chance to bank. Australia easily got through the GFC, but don't accept stories that it was leadership.....think about it, current revenue forecasting has been hopelessly inaccurate in being able to determine what is happening in the economy...so by extension of this, they could not have known what policies to adopt in 2007/2008/2009. To claim credit for happenstance is not leadership. Cash for poker machines, and pink batts to kill kids, and promises of building works within schools, did not save Australia....and was not good policy.