Due Date: 24 April, 2013 Total Marks: 100 marks Weighting: 20%
Question One25 marks
On 21 January, 2011 Mike Mangan in the Eureka Report wrote:
“Most people accept that the pre-GFC “excesses” of massive financial leverage; and bonus culture contributed to the subsequent financial collapse. And for most people in the US, the GFC is now defined as lost jobs, lost houses, often lost families and, in some cases, lost lives. You’d think financiers would be chastened by this carnage. Nothing could be further from the truth. With a quick step and a dog whistle, they just mutter “bad trade”. And their DNA is such that bad trades are quickly forgotten. Another day, another deal. Barclays CEO Bob Diamond has even demanded the industry stop apologising and, presumably, just get on with making money. This as the US faces record home foreclosures and US unemployment near 10%. Thanks for your empathy, Bob. For those who have experienced the unique world of investment banking, Diamond’s insensitivity is typical among global financiers. They exist in a parallel universe, collecting art, fine wine and other trophy toys and spending very little time wondering what the poor people are doing. Mind you, bankers have learnt the GFC lesson: no more US real estate lending. So while the US Federal Reserve prints money, hoping to resuscitate US housing, financiers are busy spraying the freshly minted dollars into commodities and emerging markets in one of the more predictable displays of the law of unintended consequences. While Australian banks were angels in comparison to their northern hemisphere cousins, even they needed government guarantees to stay alive during the GFC. Having forgotten this corporate socialism, they too are back doing what they do best: rewarding themselves with barely a mea culpa in sight. So we have the spectacle of CommBank CEO Ralph Norris sneaking through a rate rise on Melbourne Cup afternoon that was double the RBA’s rise. Not his finest hour. Politicians then shouted “re-regulation”. At that point as an industry leader, Norris could have said something like: “We as an industry have to accept more than our fair share of the blame for the GFC. We are in a privileged position and have a responsibility not just to shareholders but also to the wider community that a GFC never occurs again”. Instead what the pollies got was a warning: if you increase financial regulation it will only hurt the wider economy and by implication your electoral base. What Norris was really saying is: “I’m a protected species AKA“richus bankus”. I am not subject to normal economic disciplines. While I care for the country, it’s not my responsibility if it collapses. My only duty is to look after shareholders and they in turn look after me (wink, wink). In good times I engorge myself heartily, and when I make a mistake, as I did in 2008, I just go and ask for a government handout '¦ sorry '¦ guarantee. And because I’m so large I can never go bust. And that, children, is why I was the highest-paid Australian CEO in 2010.” Some might say I’m being too harsh. But if I wanted to be harsh I’d compare Norris’s comments to a typical Sopranos-type protection racket – an offer you can’t refuse, such as “accept my offer (pause), otherwise (another pause), I won’t be responsible for any ill fortune that may befall you, and your families”. But I’m not going to do that. Like Barclay’s CEO, Norris has a tin ear. Yes he’ll throw the odd bone to the community like the Queensland Premier's Disaster Relief Appeal. At $1.35 million, CommBank is the largest donor. But that represents just 0.02% of this year’s expected profit. Not 0.2%, but 0.02%. This apparent example of corporate social responsibility is the equivalent of the average Australian wage earner contributing about $10! The worst natural catastrophe to hit this nation in decades, and CommBank threw the corporate equivalent of a “tener”...