Monday 27 October 2008


Malcolm Turnbull's empty confidence busting outbursts are the enemy of mortgage trust investors and the economy as a whole.

Any consumer of the news media during the past week - from channel 9 news to The Insiders would reasonably have drawn the following conclusions -

* That the Government's guarantee of bank deposits was made without proper consultation with Treasury and the Reserve Bank.
* That this same guarantee precipitated the freeze in mortgage funds that has occurred during the past week.

Neither of these conclusions are true.

While the first was comprehensively refuted by both Ken Henry and Glenn Stevens last week, the prevailing impression of the week remains, without a shred of evidence, that somehow, the Government, the Treasury and the Reserve Bank colluded to deceive the general public about the level of agreement upon which the guarantee policy was founded. The Australian newspaper, which created the myth on its front page, remains unrepentant in spite of the comprehensive debunking of it by those at the centre of the story.

As for the other prevailing myth that the guarantee has precipitated the freeze of mortgage funds, consider this analogy. A fire burns in two buildings. Building A contains the fundamental supplies and assets of the community. Building B is sprawling and contains some of the community's other assets - important these are - but not near as fundamental to the community's survival as those in building A. The fire brigades arrive and use all resources to extinguish the fire burning in building A with its essential supplies. Meanwhile, damage is inflicted to building B before the fire brigades can allocate resources to quelling the blaze.

Do we blame the fire brigade?

Like all analogies, this one is clumsy in parts. But there are some irrefutable points that get virtually no media attention.

* The run on mortgage funds is the result of the financial crisis - the fire. Mortage fund investors feel insecure like all investors in non-cash assets the world over. While "putting out the fire" in bank deposits made them a more a attractive asset to hold, the inherently risky nature of mortgage funds has always been a feature of these assets - and it's a feature that has brought investors higher returns in the past than boring bank deposits.
* The Government's action to sure up the banks has made every speculative instrument less attractive - mortgage funds, shares, derivatives and commercial and residential property. Should the Government be moving towards guaranteeing these financial instruments as well?

Malcolm Turnbull has revealed the reckless damage that he is ready to inflict on Australia for his political gain. If Mr Turnbull had a genuine disagreement with the Government's position in matters of such grave consequence, he would be compelled as opposition leader to voice this disagreement and advocate some alternatives. He has done no such thing. Instead he has sat on the sidelines as Wrecker in Chief destroying confidence and adding nothing to the real policy discussion.

Of course the Government should and is taking steps to try and improve the liquidity of mortgage funds but any Government actions are likely to be of minimal consequence until there is increased confidence in the basic assets of mortgage funds. Malcolm Turnbull has consistently and wilfully undermined confidence in his comments over the past few weeks.

It has been interesting to see the extent to which the opposition leader has become the champion of the victims of the frozen mortgage funds. You would think from the furore that these funds are lost. They are not. They are tied up in property which is by definition less liquid than cash.

You would also think that these investors are the only Australian victims to date of the economic crisis.

There would be few people who have not experienced a decline in wealth during the past twelve months through falling superannuation, shares property and a collapsing dollar.

Malcolm's empathy with mortgage fund investors springs from his ability to distort their misfortune to score a political point.

Many Australians have been experiencing the bitter taste of the previous decade of reckless lending and speculation for more than a year now. They weren't so lucky as to have excess liquidity available to invest in mortgage funds or shares. No, they're the people in the less privileged suburbs of Australia who have negative equity in their homes or who have had their properties repossessed.

Malcolm hasn't been able to voice any empathy for them as this might impugn him, his investment banking past and the previous Government. He's quite content to trash the confidence in our system and institutions at a time where confidence is everything. Malcolm is the enemy of confidence. He's the mortage fund investor's illusory friend.


Paul Kelly's piece in the Weekend Australian was rational and Kerry O'Brien's interview with Malcolm was the first I've seen to expose the ruthless political animal dressed up in a lawyer's eloquence and pre-crisis banker's self confidence. The AFR coverage was also measured.

1 comment:

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