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Business Today -

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Live. Good morning, welcome

to the programme, I'm Whitney

Fitzsimmons in BTN Daily.

Japanese spending drops by its

fastest pace in 38 years.

Vietnam's rapid growth

threatened by Typhoon Ketsana.

Warnings of a bubble in the

Australian housing market. Australian housing market.

Those stories shortly, first a

quick look at the markets.

Looking around the region,

trade ended the day mostly

higher. The Nikkei added nearly

1%, but there are concerns

there is more strength in

Japan's currency. Australia's

ASX 200 gained more than 1.5%,

hitting its highest close in a

year off the back of merger

activity. Hang Seng put on 2%,

with solid gains in the banking

and telco sectors. The Shanghai

Composite Index dipped 0.75%.

On Wall Street, the market

reversed earlier weekly gains,

the Dow Jones dropped 0.5% and

the Nasdaq over 0.25%. In

Europe, the Germany's Dax slid

0.5%. For more on the markets,

I am joined by Julia Lee from

Bell Direct. We saw Wall Street

buckle overnight It was off to

a good start in the morning,

boosted by house prices, but

that derailed when the consumer

confidence numbers came out. If

we look at the S&P 500's 20

city price index, there was a

drop of 13.3% over the year,

which was better than expected.

In terms of the monthly

performance, we saw a rise of

1.6%, so that was about three

times what economists were

expecting. That gave Wall

Street stocks an early boost,

but that derailed once the

consumer confidence numbers for September came September came out. The

consumer confidence numbers

dropped to a reading of 53.1

from a reading of 54.5 in

August. The market expected a

reading of 57. It has been

looking for signs that the

consumer is strong to help

support the rally in the US.

That obviously is not

materialising. After triple-digit gains in the

session, the Dow was down by 47 points,

points, the Nasdaq lost 0.3%

around the S&P 500 down by

0.2%. Still in the US, there

is a push for banks to prepay

three years of fees in an

effort to replenish reserves.

This is a reflection of the

weakness in the banking sector.

The federal deposits insurance

corporation is responsible for

ensuring deposits in banks for

at least $250,000. In the last

couple of years, 120 banks have

failed. If we look at the

insurance fund today, it will

be in a negative balance. They

are asking banks and financial

institutions to prepay three

years of fees to increase their

liquidity. By law they need to

maintain liquidity when the

reserve ratio falls below 1.15%

they need to boost liquidity.

In June we saw it fall to

0.22%, so still weakness in the

US banking system. In Britain,

the economy has contracted more

than anticipated. We have seen

the third quarter GDP

contraction of 0.6%. It is

still better than the first

quarter reading, when there was

a contraction of 0.7%. Mortgage

approvals have remained at

their highest level in a year.

It looks like the British

recession might be easing after

five consecutive quarters of

decline in GDP. What we are

speaking to see on the regional

markets today? It look like it

will be a negative start, given

the lead from the US. Asian

ADRs dropped 0.6% in New York.

The Japanese futures are down

by 30 points, the Australian

futures down by 12 points.

There could be accelerated

selling in the afternoon,

because the Chinese holidays

start tomorrow, through to 9

October. Japan's core

consumer price index dropped by

its fastest pace on record in

August. And for a fourth month

in a row. Japan's prices fell

the most in 38 years as

economic uncertainty curbed

spending and comities became

cheaper. The price slide has

increased risk that prolonged

deflation may hamper the

country's recovery from its

deepest post-war recession.

Prices ex-cluck fresh food fell

by 2.4% were a year earlier,

the sharpest decline since the

survey began in 1971, but in

line with forecasts. Vietnam

is well on the road to recovery

has economic growth accelerated

in the third quarter to 5.58%,

and is likely to exceed a 5%

target. The economy could

suffer a setback once Typhoon

Ketsana has finished its work.

It swept into Vietnam from the

Philippines as has already

killed 32 people. Towns and

villages have been flooded and

the typhoon has left a trail of

destruction. Typhoon Ketsana's

damage to the Philippines'

economy has been some timed at

nearly $100 million. The

Reserve Bank has voiced

concerns about a possible price

bubble emerging in the

country's housing market. The comments came on the same day financial executives and accountants urged central banks

to be proactive in trying to

head off asset price bubble.

House pricesin Australia are on

the move as the economy

recovers and the Reserve Bank

sees danger signs. Looking

forward, the risk is that we

might move towards undesirably

strong price growth in

Australian housing prices. This

raises a number of concerns.

The most recent figures for the

June quarter show established

house prices jumped 5% in both

Sydney and Melbourne, 4% in

Canberra and 3% in Adelaide and

Perth. A key driver of the

surge in prices is the

continued inability of builders

and developer to meet demand.

Tony Richards puts the blame

squarely on state and local

governments. It is clear there have been problems in recent years in the zoning and

development and billing

approvals processes. While the

Reserve Bank has identified the

possibility of a house price

profession says that is not bubble, the actuarial

good enough. Members of the

profession have gathered in

Sydney to discuss life after the global economic crisis and

they have heard a call for

regulators to step in when they

believe an asset price bubble

is building. You need another

tool to address that, so you

are not limited to one tool,

which is the interest rate

monetary policy, but you have a

second tool, which would be the

way you administer capital

requirements for banks in

particular, in order to influence outcomes in asset

markets. In other words, as

asset prices rise, banks'

ability to lend would be

restrengthed, which would

forcibly reduce demand. When

you see an asset market bubble,

the regulator would take the

view it would increase capital

requirements in such a way as

to defuse that bubble, without

bursting it in a case trofk

way, so we have a soft landing

and the mark cools down. The Australian prudential

regulation authority sets

capital adequacy levels for

banks, which remain in

excellent health. While it is

not in the business of picking

bubble, it says it will beef up

its stress testing of financial

institutions. The most

important thing is we remain

vigilant and effective around

supervision, because the

essence of APRA's activity is

that we work in advance on a

preventative basis of the board and the management of the

financial institutions. Australia's regulators have

been widely praised for helping

Australia avoid the excesses and troubles experienced by

other countries. In APRA's

case, John introduce bridge

said the collapse of HIH

insurance a decade ago was a

wake-up call that led to better

supervision of the banking and

insurance industries. The

government of Singapore

investment corporation has

suffered a loss of more than

$40 billion, make it will one

of the worst years for the

sovereign wealth fund since it

started in 1981. GIC's assets

fell by more than 20% in the

mare to 31 March as the

collapse in financial markets

drove down the value of its

stake in UBS. The company says

it is continuing to lose money

on its holding in UBS, though

it has made a profit on its

investment in city group.

The global financial crisis has

hangd many ways we do business

and think about banking and

finances. Some say its impact

has been even far more reaching

and has created societal

shifts, creating focus on what

it means to be a civilised

society. One person who thinks

that is the John Armstrong, and

I caught up with him to discuss

had book, in certainly of

glocial civilisation, and asked

him do you the global financial

crisis has impacted on eroded

the notion of civilisation: I

do not think it ha has done the

another of civilisation any

harm. What it has done is make

us more interested in the

concept of civilisation, more

interested in accounts of how

economies function well for

people. I think that is one of

the ideas that is central to

the general notion of

civilisation. The disparity

between rich and poor in many

developed nations is growing

each year. Is this symptomatic

of a less civilised society or

just the result of a society

that has lost sight of what's

important? I think it's not in

itself, as it were, an intense

problem. Think we overestimate

the significance of that

statistic. The issue isn't

getting everyone to have the

same or a closer standard of

living; the question is: In a

society where people can earn

great sums of money or have

great wealth, how well do they

use those resources for the

collective good? I think that's

the really important issue, not

trying to close a gap between,

as it were, rich and poor.

Many would argue that the

wealth that is being created by

many nations is not necessarily

being used for good or to bring

people out of poverty. Think

that is right. That is where

the problem comes in. I think

we should try to get more

ambitious in understanding how

wealth can be used constructively and how it can

be used for the long-term good

of many more people. You say

in your new book that sources

of wisdom, maturity and

happiness are drying up. Can

you give us some examples of

that and tell us why? If you

take an historical period like

the renaissance, you have a

very close connection between

the sources of wealth in that

society and its most ambitious

intellectual and artistic

culture. That is not just about

money saying things to the arts

and higher education, it's also

about the sources of ideas, of

intellectual adventure and

artistic creativity saying a

lot of things back to the

economic drivers of that

society. I think what has

happened is that the arts,

intellectual life, even

religion to some extent, have

become really shy of talking

seriously to the business

world, to the makers of our

economy. I think that you can

see this to some extent in

terms of the gap between our

intellectual culture and our

business culture. When I first

took up a job at the Melbourne

Business School, one of my philosophy colleagues said,

"You are going over to the dark

side." That is one person. But

I think it is symptomatic of a

sense of distance. The

consequence of that is that

people who are, as it were,

making our philosophies, making our

our underlying intellectual

ambitions, are very far away

from the places where those

ideas are needed. That is what

I mean by saying that the

sources of wisdom are drying

up. It is interesting, because

never before has the world been so technologically advanced,

yet you are alluding to this

return to ignorance? I think that when you

that when you have tremendous

material power, it is like

adolescence - you have this

child who is quite containable

in some ways, then sudden ly

they are 15 and a half and they

are huge and they can go out

and do whatever you want. As a

parent, you are suddenly faced

with a much stronger child. That

That is a model for a

technologically sophisticated

powerful society. Of course, it

becomes all the more

challenging to try to find the

ideas that will be strong

enough to govern those great

forces. I think sometimes we

tend to imagine that our task

would be much easier if only we

could reduce our powers, if

only we could move away from

technology or move away from wealth creation. Whereas I

think that the real challenge

is to fashion our ideas in such

a way that they can speak to

those great powers. It's not so

much that we have become

ignorant, it's rather that ignorant, it's rather that we

have out-grown in some ways the

traditional conceptions of

morality or traditional

conceptions of a good society

that fitted previous economic

situations. As you know, we

witness he the latest round of

G20 talks in the US. Did the

result there present you with

hope that leaders will

hope that leaders will find

their feet and be able to lead

their economies out of the

crisis? It is hard, observing

from the outside, to have a

sense everywhere things really

are. One message that it seems

to me to come through is that

governments are responsive to

the expectations of the

the expectations of the public.

There is a very widespread

sense that they have to take

long-term responsibility for

the condition of the world,

then that is what governments

will want to be seen to be

doing. In a sense, that we get

the governments we deserve. I think there is think there is evidence that

governments are very sensitive

to wanting to show that they

are doing the right thing.

John Armstrong, thank you for

joining Business Today.

Australia's biggest

telecommunications company

rhetoric Telstra has increased its

rhetoric against the

government, promising to defend

its shareholder' interests. The

government is considering

separating tilt's retail and

wholesale arms ahead of the

development of a National

Broadband Network for

Australia. Telstra has so far

indicated that it is

disappointed by the move. Four

months into the job, Telstra's

chief executive David Thodie

appears to be striking a more

conciliatory tone with the

government than his predecessor, Sol Trujillo, but

the decision of the government

to split up Telstra into

wholesale and retail operations

is making them nervous. It is

forcing Telstra to sell assets

it doesn't want to sell, which

is completely unheard of. We

don't live in communist are

youar on Venezuela Venezuela.

This is a listed company, it is

not owned by the government, it

is owned by 1.4 million

shareholders. Now the

telecommunications giant is

starting to apply political

pressure of its own. In a

letter to shareholders it says:

Some investors think the

Thodie approach is too light.

You wonder whether, if you had

the previous management, we

should have engaged 1.4 million

shareholders and 1.4 million

voters in this debate, whether

the government would have had

the audacity to suggest what is

in the proposed legislation.

Anton's fund owns more than 50

million Telstra shares. He says

it is unfair it is unfair the government

changed the regulatory

landscape after the public was

encouraged by the previous

government do buy Telstra

shares. He also takes issues

with its concerns about a lack

of competition in Australia's

telecommunications sector. The

facts are Telstra has 40% share

of mobile, in other words 60%,

the majority of mobile - are

controlled by competitors.

Telstra has 40% share of

theener, so 60% is zoned by

competitors. The view of

Telstra being a monopoly is

outdated. Analyst bile Keenan

says the telco has an advantage

when it comes to the fixed line

infrabusiness. It can run the

business as a profitable

margin. If you take away the

infrastructure business,

Telstra is like Optus or any

other reseller and its margins

will be determined largely by

the National Broadband

Network. He says if the fixed

line business is taken away it

could face a big problem. 20

or 30% of its cash is at risk,

then we have concerns about its

financial structure. It has $17

million in gross Deb. If you

take away the cash flow, the

financial structure might be

under pressure. Analysts say

it is unlikely the government

will give Telstra a fixed cash

payout for its fixed line

business, so the company would

be given a stake in the

National Broadband Network.

While it may save the taxpayer,

it is a prospect major

shareholders are eager to

resist. The tactical battle

between the owner of Sydney

airport and rival management

group Global Airports has been

thrown out of court. Macquarie

airports decided to internalise

its management and separate its

business from the broader

Macquarie Group. Macquarie

Group could walk away with a

$345 million break fee. Global

Airports says it can manage the

company more efficiently and

wants 'Sydney Morning Herald's

to be given more details about

the arrangement. The judge

ruled that delaying the meeting

would pose a serious risk of

loss to third parties, so the

vote will go ahead as planned.

It is expected shareholders

will support the existing

management. The Australian

Government is reconsidering its

push for greener cars. One

option is to support cleaner

versions of big passenger cars

because smaller hybrid models

haven't sold well. While mass-produced electric cars

could be part of the solution, all aspects of manufacturing

will need to be involved in the

revolution. The car makers

across Australia, sales have

slumped and production has

dropped much the answer may be

radical change. I think the

opportunity is for the have to

look substantially different

By March next year the ANU's

Matthew doolian will come up

with a 20/20 vision for the

industry, but Australia will

still be making big passenger

cars. A low emission vehicle,

whether through hydrogen

technology or electric vehicle

technology. How it happens is beyond the control of

Australia. I think it's in the

hands of product planners in

other parts of the world.

Graham Spurling used to run

Mitsubishi Australia. He says

subsidising car makers misses

the bigger pictures. We will

need cars, and a green car will

be very good. What we need most

of all is employment in

manufacturing industry, but

that is the big employer. The

Rudd Government has pledged $6

billion in a green car fund.

The demand may not be there.

In the year to August,

Australians bought just over

600 hybrid vehicles, which is a

60% drop on the previous 12

months. Some suggests we may

need to direct government help

to a wider base of new industries. The car makers say

to get a greener vehicle the

auto industry needs to get bigger and more bigger and more productive.

The vision statement calls the

move game changing - something

that will require more taxpayer

funds. The auto industry is

also talking to companies that

may one day provide the hydrogen fuel or battery

charging stations to power the

cars of the future. Health

reform in the United States is

proving to be a difficult

issue, with critics saying

with young people will be sadled

with a legacy of debt if

President Obama's proposes are

passed by Congress. Many young

people are in favour of health

reform and not put off by the

prospect of increased taxes and

enormous Deb. It is a valid

concern... You are taking our

kids future and driving it

right into the toilet. It is a

figure that is incomprehensible

for most for most Americans. The

national debt clock is more

than $11 trillion. If

healthcare reform peaces, will

our kids pay through the nose?

That's something we haven't

talked about enough. Some

believe young adults were

likely to bear the brunt of the

reform costs. Those young

will be required people who don't have insurance

will be required to buy

subsidies but those who don't insurance. Some will receive

will have to pay something they

are not paying today. About 10

million young Americans aged 19

to 26 don't have health

insurance. Janice Martin is one

of them I'm looking for

private insurance, I can afford

some insurance, but costs are

out of control. Last week at

the University of Maryland,

thousands of students showed up

to hear the president talk

about reform. Healthcare is

about more than the details of

a policy, it's about what kind

of country you want to be. Mr

Obama's words resonated,

despite the fact many will be sadled with college debt and

the prospect of a terrible job

market. 58% of young adults

favour healthcare reform. More

than any other age group they

believe it is a rate, that it is embarrassing that the United

States is the only democracy

that doesn't have universal

healthcare cover am for its

citizens. Under the latest

Senate proposal, tax experts

say a bare bones catastrophic

policy for young people could

cost as much as $200 per month.

The president promised he won't

sign a reform that adds to the

deficit. Critics say that means

higher taxes. Martin is

willing to listen, despite

concerns that such ideas will

bankrupt his future. Now the

headlines around the region.

The 'Standard' says it is hoped

the majority of investors who

suffered losses from invest s ing in Lehman mini-bonds will have accepted a settlement

offer in the next couple of

weeks. The 'Wall Street

Journal' reports a top Chinese

banking relate lator says City group should expand its

operations in China. That's

all for this edition of

Business Today. I'm Whitney

Fitzsimmons. Thanks for joining

me, enjoy your day. Closed

Captions by CSI.