ASIC is in full ‘fire control’ mode, as a result of its astonishing failure — begging the question of complicity — in the RBA corruption scandal.
But it seems many just aren’t buying their lines:
Cross-posted from Macro Business:
It is one of the more weird characteristics of Australian economic commentary that the Reserve Bank of Australia enjoys an untouchable position. Bank economists and economic observers all hold the central bank in very high esteem, to the point where it is borderline criminal to question the monetary authority.
The reason for this is pretty straight forward. The world of employed economists in Australia is very small and you don’t want to be marked as a trouble maker if you intend, as many do, to move between public and private offices over your career.
Which brings me to last night’s Four Corners episode that recounts the allegedly corrupt histories of the RBA subsidiaries, Securency and Note Printing Australia, as well as at the bank itself.
If you missed the program I suggest you set aside 45 minutes to watch it in the near future. It is here. I’ve been aware of most of the allegations for years but to see the entire story told from beginning to end is really something else. It is shocking.
The program describes a culture of systemic lying and greed, of economics without ethics, of total failures of governance, of group think and entitlement throughout the elite levels of the RBA’s subsidiaries and perhaps at the bank as well. I have had my faith in the institution shattered and only a full and open inquiry has any hope of restoring it.
I have no idea if anything will come of the investigation. Probably not. But the stain upon the Reserve Bank of Australia will thus be all the more indelible.
It is this blogger’s fervent hope that this scandal will prompt many more people to begin to ask questions about the RBA.
Leading, most importantly, to the question of why we permit it to exist at all.
Whether this particular accusation proves true or not, any additional scrutiny placed on the (many, secretive) actions of the central bank is very, very good news.
From the Australian:
THE Greens are escalating calls for a full judicial inquiry with the powers of a Royal Commission to probe allegations of dirty deals at the Reserve Bank and its subsidiaries.
The Reserve Bank is facing allegations it used a front man to liaise with the brother-in-law of Iraqi dictator Suddam Hussein in a bid to sell plastic banknotes to the country at the height of the United Nations-imposed sanctions.
Deputy Greens leader Adam Bandt today called on the Abbott government to establish an inquiry that has the same powers to investigate the allegations as the probe into the Australian Wheat Board scandal.
“Most Australians would be shocked to know their central bank has been using their money to line up dirty deals with Suddam Hussein,” Mr Bandt said.
“The stench surrounding the Reserve Bank and its subsidiaries is now so strong that only a full independent judicial inquiry will clear the air.”
A joint Fairfax/ABC investigation into the Reserve Bank and its two polymer banknote firms, Note Printing Australia and Securency, has also alleged the Australian Securities and Investment Commission failed to investigate allegations of corruption, and reported claims by whistle-blower and former NPA executive Brian Hood that publicly challenge RBA governor Glenn Stevens’ parliamentary testimony about the scandal.
“The claim that RBA officials misled Parliament is disturbing,” Mr Bandt said.
“When Parliament resumes, the Greens will move to have RBA officials appear before a parliamentary committee to answer these serious allegations.”
Mr Bandt said the failure of the corporate watchdog to investigate claims of sustained wrongdoing at the Reserve Bank was appalling.
“It seems ASIC, our corporate regulator, was asleep at the wheel.”
“ASIC throws the book at a lone global warming activist who sends out a press release, yet turns a blind eye to repeated claims of sustained corporate corruption in the Reserve Bank.”
“Asleep” at the wheel?
How about, “happily along for the ride”.
Yep. Crooked as a dog’s hind leg.
From the Australian Financial Review:
A Reserve Bank of Australia subsidiary used a frontman to liaise with Saddam Hussein’s brother-in-law in an illegal effort to supply plastic bank notes to the Iraqi government while it was subject to United Nations sanctions, according to confidential RBA files.
Two whistle-blowers who became police witnesses in the Reserve Bank-note bribery scandal have also broken their silence about the failure of the Australian Securities and Investments Commission to investigate the directors of two allegedly corrupt RBA companies, Note Printing Australia and Securency.
In 2011, Securency and Note Printing were charged by the federal police with bribery offences related to alleged payments to overseas officials. Court orders prevent recent developments regarding the charges against the companies from being reported.
The companies’ former directors, who were appointed by the Reserve Bank, have never been investigated for allowing corruption-prone business practices to flourish for 10 years.
A whistle-blower and former top NPA executive, Brian Hood, also challenged Reserve Bank governor Glenn Stevens’s parliamentary testimony about the scandal from 2010 to 2012, which he said “wasn’t the truth”.
Mr Hood claimed the long-standing chairman and ex-RBA deputy governor, Graeme Thompson, and other directors, including former NPA director Mark Bethwaite and former RBA board member Dick Warburton, agreed to conceal from Nepali authorities secret commissions NPA paid to an agent in Nepal for help winning polymer bank-note contracts.
Confidential bank documents reveal that in May 1998, NPA launched a secret project code-named Delta to secure $80 million that Iraqi President Hussein had “already allocated” to buy Australian plastic note technology.
Reserve Bank officials working for NPA said the funds could potentially be accessed by funnelling the money through a Jordanian bank “with the green light of SH [Saddam Hussein]”.
A frontman was used by Reserve Bank officials to cover up NPA’s decision to use a notoriously corrupt middleman, Saddam’s brother-in-law and bodyguard, Arshad Yassin, as a facilitator to sell notes to the Iraqi regime.
A legal expert and Sydney University associate professor, David Chaikin, who reviewed the Project Delta files for Fairfax Media, said they showed a “very strong prima facie” case that RBA officials involved in the Iraq trip breached UN sanction 661, which banned Australians from engaging in any business dealings “which promote or are calculated to promote” the sale or supply of any goods to Iraq.
When Project Delta was launched, the Reserve Bank was responsible for upholding the sanctions. The project was known to top RBA bank-note officials, including Mr Bethwaite.
A Project Delta file faxed to Mr Bethwaite in 1998 states that Arshad Yassin’s involvement in the secret deal was “critical as all decisions on this project will be taken by SH [Saddam Hussein].”
Project Delta was stopped in September 1998, after a senior Australian diplomat, John Hines, from the Department of Foreign Affairs Middle East branch, learned of it and wrote a furious letter to NPA warning that its “informal meeting with Saddam Hussein’s brother-in-law may have already breached Australia’s obligations in international law”. He complained NPA had ignored repeated requests to provide details to the government about its plans in Iraq.
The fact that an RBA representative travelled to Iraq using “an Australian Official Passport . . . only adds to the potential for embarrassment to the government,” Mr Hines wrote.
Project Delta was never made public because Mr Bethwaite and other NPA directors kept it secret in 1998 and, again, in 2009, when the corruption allegations involving NPA and Securency were first aired in the media.
Rather than stopping all high-risk business practices when Project Delta was wound down in 1998, NPA and Securency directors embraced bribery-prone activities, including paying foreign agents huge sums for convincing overseas officials to give contracts to the RBA’s banknote companies.
ASIC and the Australian Federal Police have never investigated the former directors of the two firms for overseeing the high-risk practices.
Under Australian corporate law, directors must act with care and diligence to ensure the firm they oversee does not engage in corruption.
ASIC, which decided in 2012 not to conduct a formal inquiry, has not interviewed a single witness or suspect.
ASIC made the decision after reviewing documents gathered by the Federal Police probe even though the AFP bribery inquiry never investigated directors for alleged corporate offences.
A Fairfax Media-Four Corners investigation has found allegedly corrupt practices spread, with the knowledge of some directors, many years before Mr Hood and a second whistleblower, James Shelton, raised concerns that led to police charging the two Reserve Bank companies with bribery in 2011.
In his first public interview, Mr Hood, a former NPA company secretary, said some former directors allowed highly risky business practices to occur and covered up suspected corruption.
One example cited by Mr Hood involved Mr Thompson ordering NPA to wire $400,000 in 2007 to a Malaysian arms dealer who was helping the firm to win bank note contracts and who had already been paid more than $2.5 million.
The money was sent despite Mr Hood’s pleas not to pay the suspected arms dealer because he was suspected of being corrupt.
Mr Hood said that he was “gobsmacked” by Mr Thompson’s conduct because it so clearly exposed the Reserve Bank firm to possible bribery.
Even after this arms dealer was sacked, Mr Thompson and other directors approved further payments to him in return for his lobbying of Malaysian officials.
In 2011, Malaysian authorities charged the arms dealer with using NPA funds to allegedly pay bribes.
Mr Hood said: “The inaction by ASIC has been astounding. The parent organisation [the Reserve Bank] and the boards of directors have all got their responsibilities. Clearly there has been failings . . . and they should be investigated,” said Mr Hood, who was the NPA’s company secretary between 2004 and 2008.
Mr Shelton, who was a sales manager at Securency in 2007 and 2008, said: “The board is responsible for corporate governance and is ultimately responsible for the company. They [directors] would have known there were very large deals being done in very corrupt places. They put in an anti-corruption program that was fundamentally flawed by any assessment.”
ASIC has defended its refusal to conduct a formal probe or interview a single witness or suspect, saying that it decided not to do so after assessing a large number of documents gathered by the Federal Police.
Mr Hood attacked Mr Stevens for testifying before Parliament that the first the RBA knew of corruption allegations involving Securency was when they were aired in 2009.
Mr Hood said that he told the RBA in writing and in a verbal briefing in 2007 that Securency and NPA were exposed to alleged corruption.
The Reserve Bank owns all of Note Printing Australia. It sold its half share in Securency this year. The RBA, Mr Thompson, Mr Bethwaite and Mr Warburton declined to answer questions.
This is what Australian politics has been reduced to.
Shameless, disgraceful, bombastic lies.
From shameless, disgraceful, bombastic liars.
Assistant Treasurer David Bradbury was interviewed on DMG Radio today, by journalist Glenn Daniel.
Daniel challenged Bradbury on his shameless, disgraceful, bombastic lies regarding Joe Hockey’s observation on what lowering of interest rates really means for the current state of the economy.
An observation that even Fairfax newspapers’ “PolitiFact” FactChecker says is correct:
Mr Hockey is right. The Reserve Bank is cutting rates “not because the economy is doing well, it’s because the economy is deteriorating”. That’s always why it cuts rates.
Listen to the interview here — and try to keep all hurlable objects out of arms’ reach as you do so.
This is the ASSISTANT TREASURER of the nation you are listening to.
The RBA’s surprise decision to cut the official interest rate earlier this month has re-energised the housing-debt-spruiker community, who have begun forecasting house price rises of 8 – 12% per annum on the back of more interest rate cuts to come (they presume):
Close examination of just one chart — one drawn directly from RBA statistics — is enough to debunk those who still cling to the belief that the RBA’s cutting interest rates must inevitably result in rising house prices:
This chart shows the all-important annual growth rate in credit for “Owner-occupied” and “Investor” housing, for the period July 1992 to March 2013. As we saw in January’s very popular “The Easy Way To Know Where House Prices Will Go”, anyone can visit the RBA’s website and use their monthly updated Chart Pack to see the true reason why house prices rose so strongly for over twenty years. It was all about the annual growth rate in “credit” for Housing, which is presently five (5) times lower than the peak seen in February 2004.
In that January article, we used the RBA’s own data to discover that the twenty year boom in house prices was largely due to a stunning annual growth rate in so-called “Investor” housing credit…
Clearly then, house prices in Australia were not driven up over the past 15-20 years by “demand” from “population growth”, from people who needed somewhere to live (Owner-occupiers). On the contrary, by far the strongest rates of growth have – during the bubble phase – been driven by so-called “investors”.
… and that is where a closer examination of that one chart above demonstrates that the RBA’s house price policy — trying to pump up the housing bubble again, now that their recently preferred “make room for the mining boom” policy has proven to be seriously short-sighted — is doomed to failure.
Because using interest rates to influence demand for housing “credit” — especially with “Investors” — has lost its effectiveness. And we can see this clearly, simply by zooming in on the above chart to look at the period November 2007 through to March 2013…
… and then adding in the actual interest rate rises, and cuts, and rises, and cuts during this period immediately before and since the GFC:
Take careful note of the change in the growth rate of housing “credit” for “Investors”, as compared to “Owner-occupiers”, as interest rates moved.
As you can see, the three (3) interest rate increases in late 2007 through early 2008 tipped both “Investor” and “Owner-occupied” housing credit growth over the cliff. By October 2008, when the RBA began taking a chainsaw to interest rates, housing credit growth was practically in free fall, plummeting from 12% per annum (Total) to 6.3% per annum, before the total 4.25% in “emergency” interest rate cuts halted the decline.
Interestingly, you can see that both the rate of fall and the total decline in housing credit growth was greater for Investors than for Owner-occupiers. As we saw in our January article, this is also what happened in the brief early 2000’s recession:
The rate of growth in “credit” for housing “Investors” was, until early 2004, far in excess of that for “Owner-occupiers”, with the notable exception of the early 2000′s global recession that only briefly affected Australia. At that time, “credit” growth for “Investor” housing plummeted to the same level as the “Owner-occupier” rate, before recovering spectacularly to reach a whopping 30.7% annual growth in Feb 2004.
What prompted the recovery? John Howard’s introduction of the First Home Owners Grant in 2000, and in particular, his doubling it in early 2001. With a rush of newly-enslaved borrowers bidding up house prices, “investors” too rushed back into the welcoming arms of the bankers, as ever only too eager to lend “credit” at interest to willing borrowers against the “security” of “their” house.
We see a similar, though far smaller effect largely repeated in the post-GFC period. The Rudd Government further doubled the First Home Owners Grant. A modest influx of new “First Home Owner” buyers rushing out with their government-debt-financed mortgage deposit to bid for a house, drew the “investors” back into the market as well. By July 2010 the “Investor” housing credit annual growth rate once again overtook that of “Owner-occupied” housing.
But not for long.
As you can see from the chart, the annual growth rate in credit for “Investor” housing had already peaked in August 2010, and had begun to fall, 2-3 months before the RBA’s final 0.25% interest rate increase in November 2010.
“Owner-occupied” housing credit growth, by contrast, had peaked back in October 2009 — the very same month in which the RBA first began to raise interest rates again, from their GFC “emergency low”. The First Home Owners Grant helped keep “Owner-occupied” housing credit growth relatively steady through to March 2010, when it resumed its long, steady post-2004 and pre-GFC decline. It has only now begun to flatline, in the first quarter of 2013.
The important observation to make about this chart, is that since the GFC “peak fear” in late 2008 and early 2009, things have changed. The world has gone past a point of no return, and the old “rules” of monetary and economic policy do not necessarily apply anymore.
While RBA interest rate increases still have the effect of reducing annual growth rates in housing credit, cutting interest rates no longer appears to have much effect in boosting housing credit growth back up again. Since November 2011, the RBA has cut interest rates seven (7) times — the most recent (May) not shown on this chart — to what are now lower than “emergency lows”, without causing an overall increase in the housing credit annual growth rate. Indeed, the RBA’s own Housing Credit growth chart in its Chart Pack confirms this:
The RBA now has the official interest rate at 2.75%. They have cut a full 1.5% since November 2011, without managing to “stimulate” a “recovery” in the growth rate of
house prices housing debt.
There are many more knowledgeable observers than I who have argued that 2% is as low as the Australian official interest rate can go; that 2% is effectively ZIRP (Zero Interest Rate Policy) for us. The reason given sounds plausible enough; the Australian economy is essentially financed by borrowing “capital” from abroad, so with the rest of the West operating on ZIRP, we need a +2% interest rate difference in order to have any hope of continuing to attract foreign “capital”.
If the RBA is indeed “lower bound” by the 2% level, then the above chart makes one thing pretty clear.
At the present 2.75% cash rate, even another 0.75% in possible interest rate cuts is unlikely to “stimulate” much if any additional growth in Housing credit.
And with annual housing credit growth now running five (5) times lower than the February 2004 peak, and barely two-thirds the level when interest rates hit the 3% “emergency low” in April 2009, the RBA’s policy of trying to re-stimulate the housing bubble to support the economy after the mining boom … is doomed.
Simply, the RBA is pushing on a string:
This is the crux of the “pushing on a string” metaphor – that money cannot be pushed from the central bank to borrowers if they do not wish to borrow.
Don’t Buy Now.
Bookmark this post, dear reader. This is historic.
Once again, Barnaby Joyce is the first major party politician (to my knowledge) to speak truth to power concerning a(nother) vital economic parameter.
In late 2009 and early 2010 – before new Opposition Leader Tony Abbott wilted like a week-old lettuce leaf and sacked him – then Opposition Finance spokesman Barnaby warned of the dangers of Australia’s rising Federal and State government debt trajectories. Only in recent weeks, some three years later, leading economists have begun to acknowledge that Barnaby was right.
Today, 7 May 2013, appearing on radio 2GB, he is the first major party politician to state that the government can bring down the exchange rate value of the Australian dollar, and tell the plain truth about why they (the ALP, Treasury, and RBA) have not done so:
The dollar, if you actually want to, you can actually affect it. It’s not written on tablets of stone and presented from Mount Sinai. You can influence the price of the dollar down if there is real motivation and desire to do so. One of the reasons they don’t do it is because they want to be economically pure. The way we’re going at the moment we’re going to be pure in debt, economically dead, so let’s make sure we keep our industry going.
Over the past few years, our great economic leaders – the World’s Greatest Treasurer Wayne Swan, and the Million Dollar Man, RBA Governor Glenn Stevens – have deliberately chosen a policy of not joining the global currency wars. Of deliberately allowing the AUD to rise and rise versus other currencies, and to remain at unprecedented elevated levels. Why? In order to “make room for the mining boom”.
In other words, because of the inflationary impact of the mining (investment) boom, they have chosen to let a far-too-high AUD deflate the rest of the economy … to “make room for the mining boom”.
(Yes, the same mining boom that is now ending; the one that they so confidently believed would give Australia a period of “unprecedented prosperity”, a China-funded “golden age” lasting “to 2050”, according to former Treasury Secretary Ken Henry).
They have pursued an economic policy of allowing the rest of the Australian economy to be hollowed out, white-ant style, so that their precious little (bogus) economic performance figures for “inflation” (ie, the CPI) would not get too far beyond their arbitrary boundaries of preference.
While the rest of the country (except mining and related industries) has watched countless businesses, and whole industry sectors such as manufacturing, slowly getting squeezed towards, and in a record number of cases, into bankruptcy, our ivory-towered boffins have sat back applauding themselves for their ideological purity, self-congratulating for their not acting to influence the AUD exchange rate.
Despite the fact that practically every other nation in the world who can, is.
As usual, it takes the little ol’ bush accountant to bell the cat.
Barnaby for PM.
He’s the only one with both brains, and b***s.
And here you were believing our politicians and media parrots, when they say that the Reserve Bank of Australia is “independent”.
From The Age (via MacroBusiness):
TREASURER Wayne Swan defied objections from the Reserve Bank governor and siphoned half the central bank’s profits into the Budget bottom line to fulfil his political commitment to achieve a surplus.
The Reserve Bank governor, Glenn Stevens, told a parliamentary inquiry that he wrote to Mr Swan, asking him to direct all of the bank’s $1 billion 2011-12 profit to its critically short reserve fund, needed to absorb changes in the value of the bank’s foreign currency holdings. Normally worth around $6 billion, the fund had dwindled to $2 billion.
”It’s a key part of our capital. It has been depleted considerably by the effects of the rising exchange rate,” Mr Stevens told the inquiry. ”I believe the prudent course is to rebuild it as quickly as we can but I am not subject to the other pressures that the government is.”
Mr Swan denied the request, and insisted on taking half the profit as a dividend to help achieve his promise of a budget surplus this financial year.
That promise has since been dumped, leading to the opposition mounting a sustained attack on the government’s fiscal credibility.
”In the end it was his prerogative,” Mr Stevens said. ”He made a judgment, and I had to accept that judgment.”
Another day, another epic fail by our World’s Greatest Treasurer.