Ever since the Rudd Government announced its guarantee for deposits in banks, credit unions and building societies there has been a running commentary from the Opposition and the media about that move. After a brief flirtation with bipartisanship, following Tony Abbott’s dictum that oppositions should oppose, propose nothing, and turf the government out, the Opposition has embarked on a corrosive process of criticism in the hope that some of the gloss would be rubbed off the Rudd Government. Even if that were a legitimate course of action for oppositions, it would improve their standing if they at least added their considered opinion on the best course of action, so the public could judge which seemed better, their's or the Government’s. So far, the only recommendation that Malcolm Turnbull has made was to limit the guarantee to $100,000. All the rest has been carping criticism.
One would have hoped though that the media might at least have been even-handed, dispassionate and critically analytic, and that their analyses would be based on factual evidence, precedents, experience elsewhere, or well-founded, economically sound arguments. Sadly that has not been so.
We have seen a wide range of appraisals. Janet Albrechtsen’s 12 October piece Courageous Rudd overcomes history and populism, written the day of the guarantee announcement, says “...the Rudd Government deserves praise for acting responsibly and courageously.” and “Whilst safeguards, limits and restrictions need to be added to today’s measures to avoid them becoming blank cheques for foolishness, the government has clearly demonstrated leadership at a critical time. It is a sign that the Rudd Government is economically responsible in direct contrast to the Liberal Party populists who have ignored the international reality that banks are falling over, or being bailed out by governments, on a weekly basis.” No mention of bungling. Paul Kelly too had praise initially, although he subsequently hedged his bets by saying that although the unlimited guarantee was a ‘mistake’ it would do the Government no harm, and that Rudd had played his cards brilliantly. Predictably, Dennis Shanahan labeled the move as Rudd’s ‘first big mistake’.
As time went by, with the benefit of hindsight, the media began to express even greater doubts. Some, such as Alan Kohler in Business Spectator on 28 October said in Savings in a stranglehold “Unless they (Rudd/Swan) are to go down in history as the bumbling fools who wrecked the Australian economy, they must instantly, this morning, put a universal price on the deposit guarantee that was announced on October 12.” Strong words, but at least he offers advice, namely that every institution be enabled to offer AAA accounts that pay zero interest, and explains how this would work. Who knows if there’s any merit in his advice, (no one else has publically endorsed his views) but at least he’s explained himself. Not so the rest of the media. [more]
The Australian overplayed its hand in suggesting the Reserve Bank reservations had been either not been passed onto the Government, or were ignored. It was caught out. Several of its journalists have taken up the cudgels and have taken a swipe at the Government, culminating in a piece this morning’s 30 October issue of The Australian, Policy caught short in a crisis by respected journalist Mike Stekatee, in which he made several assertions that are archetypical of much of contemporary media opinion. Talking about the guarantee he says “Turnbull is right when he says it was rushed and bungled.” Rushed, yes, all agree the situation was urgent, but Stekatee provided no arguments to show how it was bungled. He goes on to say “The Government went further than in most other countries, despite our banks being in better shape.” So he’s arguing that the better shape a banking system is in, the less it needs a guarantee. It might sound self evident, but where is the evidence? In casting doubts about the wisdom of an unlimited guarantee, and the levy on amounts over $1 million later imposed, he says “Turnbull's suggested threshold of $100,000 is closer to that set in Europe, but whether it would have solved the problem is anyone's guess.” Given that admission, what then is the ‘right’ threshold? More or less? How much more or less? Steketee offered no opinion. Like many other commentators, he has latched onto the conventional wisdom that there is a ‘right’ threshold, without ever stating what it might be, but quite certain that Rudd’s initial unlimited guarantee followed by a $1 million threshold for a levy was ‘wrong’, a 'bungle', and that his actions have resulted, at least in part, to the flow of funds from non-guaranteed funds to guaranteed institutions/funds, although he points out that 10 funds had already placed a freeze on redemptions before the guarantee was announced. So clearly investors in those funds saw reasons to make their move before the Rudd guarantee. The extent to which the advent of the guarantee accelerated that movement is unknowable, but like so many commentators, he attributes most of this ‘problem’ to the guarantee. Again there’s no supporting evidence.
Further on he says “The truth is that the Government has been making it up as it goes. It is understandable that it did not want to be caught napping by fast-moving developments overseas, but it overreacted and it has been scrambling to patch things up ever since.” Of course the Government has been making it up as it goes; urgent and unique situations, for which there is no precedent, require that. But how has it ‘overreacted’? Journalists seem to think that just repeating mantras that say the same thing: ‘bungled’ and ‘overreacted’ make them valid. Experienced journalists must know that this is not so. These words reflect individual opinions, often shared by others, but all the like opinions in the world don’t make them right. The fact is that in this complex, rapidly evolving, completely unique financial situation, no one has the wisdom to unerringly know the best way to proceed. Rather than acknowledge that, he has followed in the footsteps of other columnists in his condemnation of the Government’s moves without ever revealing what would have been a better course of action, and why. The fact is that neither he, or anyone else, knows.
If only journalists would acknowledge that, and write pieces that are helpful to our understanding of this complex dynamic situation, rather that fuzzy material that does little to enlighten. Instead, they are infected with groupthink, both in expressing their opinions, and in their failure to back their opinions with plausible evidence.
In Malcolm Maiden's piece in Business Day in today's Age, Rudd's wacky 'become a bank' idea is impractical and smacks of desperation, he says "There's no doubt that the Government had to guarantee bank deposits when it did. Ireland's earlier decision to guarantee its banks forced every government to follow suit, or risk being swept away by fear-laden depositor runs to regimes that did offer the guarantee. By the time the Rudd Government acted, a run was developing here in the smaller banks. And the bank deposit guarantee accelerated a move by investors out of managed funds and into the safety of the now explicitly guaranteed banks, rather than creating a run. Money had been moving away from funds into cash, government debt and bank deposits all year, as it always does in financial crises.” Later he offers his advice: "The best long-term solution is to re-establish the status quo, by withdrawing the bank deposit guarantee, and replacing it with the more limited, $20,000 deposit insurance scheme the Government announced in March, before the crisis went nuclear. The markets are going to have to stabilise for that to occur. But if stability returns next year there would be a case for truncating the three-year term of the bank guarantee" Advice, but no evidence to show how this is a better option.
So what does the Opposition and the media really believe about the bank guarantee? From all that has been said and written, it seems that they don’t know what they believe, and even when they think they do, they advance no evidence to support their beliefs. Talk about the blind leading the blind. Pity is they don’t realize how sightless they are.