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Wednesday, 26 November 2008
Page: 7404

Senator BOB BROWN (Leader of the Australian Greens) (5:13 PM) —The greed that brought about the current global financial crisis is now being extended by the private sector, through willing parliamentary representatives, as an extra impost on the public sector. This legislation, the Guarantee Scheme for Large Deposits and Wholesale Funding Appropriation Bill 2008, is all about advantaging the finance houses when they go to borrow overseas against competitors for those borrowings. Senator Coonan said that the government, by failing to move this legislation earlier, was effectively—the word she used meant this—blocking the banks from getting finance. That is just not right. The finance is there, it is available and it is on the open market.

What we are part of here today is a process which was begun in the UK and has spread to New Zealand and elsewhere whereby governments guarantee through the use of consolidated revenue—that is, the public purse—the ability of their domestic banks and indeed, in some cases, foreign banks to borrow on the global market and compete against other financial institutions which do not have such a government guarantee. At the end of the day, the logical process will be for governments around the world to put in similar legislation to what we are seeing in Australia today so that their banks, wherever they might be, will not be left with the disadvantage of not having a public guarantee.

According to the Australian Financial Review analysis of this process by Matthew Drummond:

The major banks—

he is talking about Australian banks—

are already at the starting gate, waiting for the race to begin.

While each of Australia’s major banks has a hard-to-beat AA credit rating, such a rating is trumped by the federal government’s AAA. Banks are keen to test the pricing possible with the government guarantee and are hoping what the UK guarantee did for London-based Lloyds TSB, the Australian guarantee can do for them.

In October, before the UK guarantee came into force, AA-rated Lloyds raised 10-year debt at a margin of 1.99 percentage points above the benchmark interbank swap rate.

Three weeks later, armed with the UK government’s AAA credit rating, it raised three-year debt at a margin of 0.18 of a percentage point. That’s getting raw materials at about a 90 per cent discount. The comparison is not exactly comparing oranges with oranges, as three-year debt is cheaper than 10-year debt, so the difference cannot be completely attributed to the guarantee.

But even after allowing for about 0.25 of a percentage point premium that typically gets levied on 10-year debt above three-year debt, the guarantee has allowed Lloyds to cut its cost of borrowing to about a fifth.

Well, somebody else did not get that money because they did not have a guarantee. The competition has been weighted by public guarantee for that bank against other borrowers who did not have such a guarantee.

The point that I want to make at the outset is that we have the big end of town getting the Australian government, the Rudd Labor government—if we believe Senator Coonan, through the pressure of the coalition—to use consolidated revenue. This is the fund from which we pay for hospitals, schools, defence, public transport and pensions, and it is to be used as a guarantee against a default by one of the finance houses having borrowed overseas. My advice, when I sought it from Treasury, was that the chance of that happening is very low. I think the word ‘infinitesimal’ may have even been used. That is what we are debating here today: no chance, no need for legislation. But the chance is high enough that this bill is now being railroaded through the Senate, having gone through the House of Representatives last night, so that funds will be made available to the borrowers who, according to the Financial Review, are at the starting gate waiting for the race to begin on Friday. A lot of money in the private sector is going to be gained because of this public guarantee, which, I submit to every member of this Senate, has not been canvassed with the public at all.

We saw today a move by the Greens to have this matter put to a Senate committee for investigation over the next week, but both of the big parties voted that down. In other words, they sidelined the time-honoured role of the Senate to ensure that, particularly where there are nationally significant pieces of legislation affecting every household in the country—and this certainly qualifies in that category—scrutiny is applied to the executive, which is effectively what the House of Representatives is when there is a one-party majority, and the public interest can be brought to bear. But dangling on the strings of the big finance houses, the two big parties have decided that that scrutiny will be set aside so that this legislation can be gotten through before there is any public scrutiny and, dare I say it, public furore at the parliament being sidelined.

It is not just the parliamentary process that is being sidelined today. At the heart of this bill is the future prospect of a default by a finance house on an overseas loan, which will then be adjudicated by the executive, the government of the day. It will draw on consolidated funds—that is, the people’s money—or borrow at risk to the people of Australia to make good that failed overseas loan. This piece of legislation is the Liberal Party of Australia, the National Party of Australia and the Labor Party of Australia dismissing parliament’s responsibility to be intimately involved in debating an issue as big as a loan default where billions could be at stake and it being made up for through the public purse.

I would submit that parliament must—and should—in a democracy which is respected be called to deal with such a matter. This legislation fails at the outset to respect the logic that, if there were a default big enough to warrant federal government intervention, the parliament should be recalled to deal with that matter. We Greens have a difference of opinion with other parties on the matter of going to war. We believe that, like the right of the congress in the United States, it simply cannot be done by the executive; the parliament has to agree. We have seen with the misadventure by President Bush and Prime Minister Howard of invading Iraq in 2003 how this parliament was sidelined. Anybody who wants to see the debate that took place as a result of that might do well to read the speech at that time from the then honourable member for Calare, the late Peter Andren, in which he railed against this failure of government and parliamentarians to respect democracy, which makes the parliament the supreme authority. It is not the executive.

But here we are today, legislating through this bill to sideline the parliament should the event arise for which this bill is constructed—that is, the failure of a major borrowing overseas and the need for the government to move in to make up for it through public funds, through taxpayers’ money, or through borrowed money, at taxpayers’ ultimate expense. The parliament ought under those circumstances to be recalled, but this bill specifically says the parliament will be sidelined in that circumstance and the executive will make that decision. This is a provision for a circumstance where parliament should be totally involved, and the opposition and the government say, ‘No, we will sideline parliament under those circumstances and leave it to the executive to plunder consolidated revenue to the extent needed to make up for the failed decision in the private financial sector and honour a borrowing made overseas.’

I object on behalf of democracy to the big parties sidelining this parliament in such a fashion. We will not simply let that go through to the keeper. I foreshadow an amendment in the committee stage to ensure that the parliament is recalled in such an event if it is not at that time sitting. I also foreshadow an amendment which would put a sunset clause into this legislation so that 24 months from now it is reviewed, because, as we are about to find out, I suspect—the minister may prove me wrong—we will not be given in this house of review any estimate of what the government expects to raise through the guarantee process where the bank pays an amount to the government for the guarantee offered on a particular loan. Nor will we be able to get an estimate of how much the public purse is put at risk through borrowings overseas, although I note again that in the Financial Review there is an estimate from Citigroup—you can take this figure as being as secure as the bank itself!—that the big four Australian banks need to raise $88 billion in wholesale funding in financial year 2009. We are talking about extraordinarily large sums indeed.

Mr Swan, the Treasurer, has said that the banks raised concerns about doubts in international funding markets that government will be able to pass legislation with sufficient speed in the event of a claim of the guarantee. In doing so he revealed that this is banks dictating to government both policy and the parliamentary process, and in that they have a lackey in the opposition. I stand here for the Greens in defence of the public interest. We will get an argument that says, ‘You know, the borrowings of the banks overseas can be at a cheaper rate, and that’ll be passed on to the person in the street’—the unsuspecting person who does not know that their funds are being used to guarantee that very process.

But then we move to seeing how the ratings which determine the cost of borrowing overseas work. We are told here that the Australian banks are the most secure in the world and, therefore, they rate the best. But they would like their AA rating to become AAA because that is what the government has, and this guarantee will effectively move them to AAA. Who determines these things? It is the rating agencies. What a record they have! As Prime Minister Martin of Canada said when there was a desperate financial situation brought about there in the mid-nineties because Moody’s indicated it might change the rating for Canada, ‘Who are these people to be telling us what to do?’ Here we effectively have a parliament legislating on the basis—banks are captured by this—of three international rating agencies based in Washington who have manifestly failed. They were the watchdogs of international finance.

Senator Xenophon —More like chihuahuas.

Senator BOB BROWN —Senator Xenophon, I would not demean chihuahuas by saying that the ratings agencies were in their category! These ratings agencies failed their job; yet we have a system that inherently depends upon the very same ratings agencies. The banks are saying, ‘Give us this legislation so we can move up a notch on Moody’s or Standard & Poor’s.’

The Prime Minister, in his last address to the Press Club, said:

The balkanisation of risk, the attenuation of risk sought the impossible dream of the elimination of risk and responsibility—so that ultimately nobody believed they carried risk and responsibility.

And through it all, the ratings agencies blessed these products as safe investments—ratings agencies that have yet to face their own day of reckoning—and the products they sanctioned continued to proliferate.

Here we have the Prime Minister, who said that the ratings agencies have yet to face their own day of reckoning, dancing to their tune post the financial crisis, post the failure of the very same ratings agencies. I ask the question—and I will be asking it in committee, so get ready, Minister: who is rating the ratings agencies? What is the government doing about the failure of these three international watchdogs, which are manifestly a disgrace? Whatever reason you give for them, they disgracefully failed, and millions of people around the planet are paying for it.

Now the banks are saying, ‘We depend on the ratings agencies for borrowings overseas and we want legislation that is going to put us up a notch on the ratings offered by these very same failed ratings agencies.’ What a remarkable situation this is that the Australia parliament is being bulldozed by these failed ratings agencies and the international banking system. This puts pressure on other countries in our region to do the same, to fall into line. Poorer countries cannot compete with our banks for the very same reason that we are here today, which is because our banks are saying, ‘We want to compete with the UK banks.’ We have the wealthy countries instituting a process to get advantage—I will not use the word ‘greed’—in the international financial system, which puts the squeeze on poorer countries again. That is part of this process which I object to. (Time expired)