When Ken Henry (NAB Chair) tried to dismiss SC Rowena Orr’s questions about the NAB top management’s significant compliance breaches with “Well, we could have fired everybody, I suppose”, he was correct. Hayne did not call his bluff. Henry had a duty to fire them, since the Gillard legislation about the clients’ best interests was saved, though later PM Abbott tried his best to ensure that banks need not serve people’s best interests. That they plainly did not (anyway), is a story of former Treasurer Costello’s making.
Let me start with Michael West’s brilliant exposure of the cosy relations between banks and government in The Saturday Paper December 1-7, 2018, ‘Bank penalties disguised as charitable donations’. West’s article shows specifically how the fraud committed by banks was rewarded by ASIC’s Enforceable Undertakings, in merely requiring donations to charities of their choice. Banks were not publicly named, as SC Orr pointed out, but they also benefited by gaining tax deductions, as West says ‘for what should be punishments’. True, hapless charities benefited from tainted moneys, as did Treasury and Finance via back-door payments (in 2017 of $1.2 billion) from ASIC, having saved all this by not prosecuting the banks! Thus indirectly, all the victims of banks’ dubious or illegal activities became milk cows not only for banks but the LNP Government.
In addition, banks paid for ‘Financial Literacy’ courses, which was the fashion of the new deregulatory era. The idea is based on the time-old defence of producers, ‘buyer beware’ or caveat emptor as the pompous like to call it. Bank clients would be taught to avoid excessive claims of banks – in effect blaming victims – although it’s unlikely clients would learn they could be charged even after death, for example. The Gillard law was loathed because the ‘best interests’ clause modified caveat emptor. That was after the GFC of 2007-08, and despite public revulsion of banks’ failure to ensure deposits remain at call: their side of manifold obligations to borrowers, as well as not breaking the law.
ASIC’s manifold weaknesses are an old problem by which banks have evaded laws and rules for so long the practice is called Goodhart’s Law (former member of the Bank of England Board). After the Wall Street catastrophe of 1929, goodly numbers of ‘banksters’ were jailed, and most democracies found ways to control banks’ evasions of duties and laws. But, unlike say laws against foodstuffs with salmonella, victims of bank fraud can easily be blamed under caveat emptor. And along with the 1970s fever for deregulation – in America called the ‘revenge of the rentiers’ – neoclassical economics reared its justificatory head. Buyer beware was further enforced, traders were ‘rational’ or if not, dumb mum and dad investors. Enter the Howard-Costello government which took up the fashion enthusiastically. Oh, democracy would spread to shareholders and borrowers; privatisation set in partly after Keating’s start but more from the world-wide trend to slash wages in favour of the sainted savers (who lost in the GFC too). Hawke and Keating, in contrast to the world, at least saved wages with the Accord and Medicare.
Costello followed the rich world to the letter, by removing bank regulation from self-financing central banks (here the RBA), and setting up APRA and ASIC (which needed Treasury funding). The latter was built on the so-called Efficient Market Hypothesis (EMH) that left ASIC with nothing much to do. Markets were perfect and finance ‘products’ (social relations) were self-regulating under competition, just like products such as tables. Laws of supply and demand ruled that prices (money) reflected ‘reality’ – that same EMH mantra Turnbull repeated when unable to justify corporate tax cuts. I could go on – any random price movement must be from new information, and on – thus, no need for ASIC to look there! Red tape was terrible and, after the LNP returned in 2013, it was slashed.
All the ‘laws’ of neoclassical economics revived. The LNP tried to deny the GFC’s occurrence, and the rest we remember. One question I do not know is how Rudd and Gillard directed Ken Henry, a known neoclassical and arrogantly so at the Royal Commission, when Secretary of Treasury during the GFC. The stimulus was a triumph across the rich world and, while Hockey tried to copy others’ austerity policies, Turnbull/Morrison took over to do so more subtly.
If the RC achieved much, its biggest triumph is to expose neoclassical economics for legitimising so much wrongdoing. No one in ASIC, even APRA later, wanted to talk about obligations and duties of executives who gain such largesse. Gillard’s legacy is the ‘best interests’ clause as a basis of the RC’s legal attack.
I see more work for a National Integrity Commission, to stand like a permanent RC. The biggest problem is how, like the ABC, to ensure financing it properly. The discretionary funding of the NSW ICAC was cut back, thanks to now NAB banker Baird. And, scarily near to Trump’s disdain of the US judiciary, funds have generally been reduced for the courts. Oh yes, the LNP has policies, but they’re not for us.