Son of Wal­lis com­pe­ti­tion

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If you have seen my sub­mis­sion to the Sen­ate inquiry into com­pe­ti­tion in the bank­ing sec­tor, you would know that I’m less than impressed by its premise–that what­ever the prob­lems are, they can be solved by a hefty dose of com­pe­ti­tion.

It seems I’m not the only cynic. Three other notable blog­gers

have estab­lished a par­al­lel inquiry, which is offer­ing a $1,000 prize for the best sub­mis­sion.

They have estab­lished the fol­low­ing blog:

http://sonofwallis.blogspot.com/

And they note that they have estab­lished their “Son of Wal­lis” inquiry because of:

the blogger’s shared despair at a bank­ing debate that is mired in the low­est com­mon denom­i­na­tor pol­i­tics of whether banks should be allowed to change inter­est rates beyond the Reserve Bank. Mean­while, the larger ques­tions sur­round­ing the fail­ure of the finan­cial ser­vices regime envi­sioned by the Wal­lis Inquiry go unan­swered.

They will award a $1,000 prize for the best sub­mis­sion on the issues:

  1. What are the risks and ben­e­fits of large bank whole­sale debt and how should each be addressed?
  2. What, pre­cisely, is the ongo­ing sta­tus of the Fed­eral gov­ern­ment guar­an­tee to the large banks’ whole­sale debts and what are the impli­ca­tions for the Bud­get?
  3. Given secu­ri­ti­sa­tion was at the cen­tre of the GFC, what role should it play in renewed com­pe­ti­tion?
  4. How can com­pe­ti­tion be returned to the finan­cial ser­vices sec­tor, as well as bal­anced against the need for sta­bil­ity in the light of the first three ques­tions?

The sub­mis­sions have a 1,500 word limit, and must be sub­mit­ted to the email address sonofwallis@gmail.com by Decem­ber 13th.

The win­ner will be pub­lished at Busi­ness­Day and The Drum. The entry can be anony­mous. They will be  judged by the below 5 gen­tle­men:

The Son of Wal­lis Chal­lenge is the brain­child of David Llewellyn-Smith. He is the founder of The Diplo­mat mag­a­zine, now Asia’s lead­ing inter­na­tional rela­tions web­site. He is also the co-author of The Great Crash of 2008 with Ross Gar­naut and cre­ator of The Dis­tillery col­umn at Busi­ness Spec­ta­tor. He runs a Mel­bourne-based media con­sul­tancy and writes daily at his blog Houses and Holes. For more on the Son of Wal­lis Chal­lenge he can be con­tacted at david.smith.media@gmail.com.

The Uncon­ven­tional Econ­o­mist isLeith van Onse­len, an Aus­tralian cur­rently work­ing for a lead­ing invest­ment bank. He has pre­vi­ously worked as an Econ­o­mist at the Aus­tralian Trea­sury and a Senior Econ­o­mist at the Vic­to­rian Trea­sury.The Uncon­ven­tional Econ­o­mistpro­vides con­trar­ian analy­sis of eco­nomic and finan­cial issues, with an empha­sis on Australia’s hous­ing mar­ket.

Delu­sional Eco­nom­ics is an anony­mous blog cre­ate to dis­cuss and analyse the risks asso­ci­ated with var­i­ous eco­nomic poli­cies and archi­tec­tures, focus­ing mainly on Aus­tralia. The delu­sional eco­nom­ics blog hopes to high­light the risks with exist­ing sys­tems and pro­vide con­trar­ion insight into the eco­nomic out­comes that are avail­able by using “dif­fer­ent” eco­nomic think­ing.

Deep T. is an anony­mous senior finan­cial ser­vices insider who is fed-up with his col­leagues’ reliance on pub­lic sup­port. He is a reg­u­lar con­trib­u­tor at Delu­sional Eco­nom­ics.

David Richard­son stud­ied eco­nom­ics at Flinders Uni­ver­sity and the Uni­ver­sity of New Eng­land. He has taught eco­nom­ics at UNE and the Uni­ver­sity of West­ern Aus­tralia. His research inter­ests include macro­eco­nom­ics and inter­na­tional eco­nom­ics. In Can­berra David worked in the Eco­nom­ics sec­tion of the Par­lia­men­tary Library brief­ing MPs and Par­lia­men­tary Com­mit­tees on var­i­ous eco­nomic issues before Par­lia­ment. Dur­ing the Hawke/Keating Gov­ern­ments David worked for Min­is­ters Brian Howe and Sen­a­tor Nick Bolkus. David brings a solid knowl­edge and prac­ti­cal under­stand­ing of the Aus­tralian econ­omy and gov­ern­ment. David is now a Research Fel­low at the Aus­tralia Insti­tute.

So go for it blog­gers: it’s an excel­lent idea, and there’s a worth­while prize for the best effort.

About Steve Keen

I am Professor of Economics and Head of Economics, History and Politics at Kingston University London, and a long time critic of conventional economic thought. As well as attacking mainstream thought in Debunking Economics, I am also developing an alternative dynamic approach to economic modelling. The key issue I am tackling here is the prospect for a debt-deflation on the back of the enormous private debts accumulated globally, and our very low rate of inflation.
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  • Hawkeye_Pierce

    Steve,

    My view is that de-reg­u­la­tion, designed to stim­u­late com­pe­ti­tion merely led to mis-pric­ing of risk and mas­sive risk trans­fers. The paper in the linked blog goes on to explain that risk can’t be qual­i­ta­tively “trans­formed”, it just gets absorbed or “trans­ferred”. Secu­ri­ti­sa­tion is the means for under­tak­ing this (and mask­ing under­ly­ing fun­da­men­tals):

    Alchemy, alchemy, we’ve all dis­cov­ered alchemy!

    I’d be grate­ful for any feed­back on this premise, mean­while I’ll work on get­ting a 1,500 word piece together for this inquiry (assum­ing that UK res­i­dents are eli­gi­ble?)

    Thanks

    Hawk­eye (the foren­sic sta­tis­ti­cian)

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  • cape1232

    Quote: “Deep T. is an anony­mous senior finan­cial ser­vices insider who is fed-up with his col­leagues’ reliance on pub­lic sup­port.”

    It is my, albeit rel­a­tively unin­formed, under­stand­ing of bank­ing that basi­cally, while bankers do pro­vide a valu­able and nec­es­sary ser­vice, the way banks are run today, their fan­tas­tic prof­its really are in effect given to them for free out of pub­lic funds. The quote above about Deep T. sug­gests this. Am I wrong/too extreme in this opin­ion?

  • Hawkeye_Pierce

    Cape1232

    You cer­tainly are right to raise the ques­tion and there are a lot of peo­ple who share this opin­ion.

    As a duti­ful UK tax­payer, I have ignored the main­stream media tit­tle-tat­tle and spent the last year or two doing due-dili­gence on the bank­ing sec­tor, and here is my con­clu­sion:

    <a href=“http://forensicstatistician.wordpress.com/2010/11/19/is-modern-banking-fundamentally-flawed/&quot;

    We effec­tively have zom­bie banks propped up by Gvt guar­an­tees. This was enacted by a sub­tle weapon at the major banks dis­posal, and that is Secu­ri­ti­sa­tion of loans and assets. Secu­ri­ti­sa­tion cre­ates the appear­ance of risk tam­ing (i.e. low inter­est rate) but is in fact risk trans­fer to an unsus­pect­ing (irra­tional or igno­rant) coun­ter­party (hmmm.. tax­pay­ers??). It is tan­ta­mount to state spon­sored fraud. 

    The arti­cle in the blog is quite long (about 4500 words), but worth read­ing for it dis­sects the very argu­ments put for­ward by de-reg­u­la­tors that lib­er­al­i­sa­tion is a good thing and has cre­ated last­ing pros­per­ity. This could not be fur­ther from the truth.

  • Hawkeye_Pierce

    Oops. Must learn HTML prop­erly. How about:

    Flaws in mod­ern bank­ing

  • mahaish

    hi hawk­eye,

    counter party is such a benign term,

    but its deadly when counter par­ties come up against the cor­po­rate veil.

    the cor­po­rate veil means you give your com­peti­tors and cus­tomers as lit­tle infor­ma­tion as pos­si­ble.

    to para­phrase sir humphry appleby, you only reveal infor­ma­tion to some­one, that they could eas­illy find out some other way

    as you indi­cate, the cor­po­rate veil, means cor­po­ra­tions are intent on shift­ing risk in its entir­ity.

    not just spread­ing it around.

    book­ies spread risk, when cashed up lead­ing syd­ney busi­ness­men and rac­ing iden­ti­ti­ies won­der their way, but mar­ket infor­ma­tion is redilly avail­able and fairly trans­par­ent, mind you it would prob­a­bly pay to won­der down to to the sta­bles once in a while to make sure there isnt too much knobling going on, and that one is get­ting fair odds

    benanke et al, obvi­ously wer­ent too keen on won­der­ing into a few finan­cial sta­bles, to find out where the stench was com­ing from.

    per­son­ally i think steve and oth­ers are right not to be too con­cerned about the bleet­ing as to what some of his pol­icy rec­om­men­da­tions would poten­tially do to the sec­ondary mar­ket.

    the sec­ondary mar­ket started the ball rolling when it came to the pointy end of this mess in 2007 /8. as far as im con­cerned we should get rid of the sec­ondary mar­ket and the abil­ity of banks of any kind to secu­ri­tise their loan book, and sub­se­quently for oth­ers to place bets on the future value of those secu­ri­ties.

    and besides, like in all these things, includ­ing steves share pro­posal, the mar­ket will find a
    way around this me thinks, by issu­ing dif­fer­ent classes of shares at vary­ing matu­ri­ties and swap/preference arrange­ments. so we’ll have to ban a whole heap of share deriv­i­tive prod­ucts and mech­a­nisms as well. 

    by the way , please dont take as gospel all that igbc(inter tem­po­ral gov­ern­ment bud­getary con­straint) non­sense about sover­iegn cur­rency risk.

    cheers

  • bur­rah

    O/T, the great Hugh Hendry gives Steve a big wrap in his lat­est post­ing at Zero­Hedge.

  • ferb
  • bil­l88

    Hello Steve
    I have been fol­low­ing your blog for some time and have been con­cerned about the high lev­els of pri­vate debt in Aus­tralia I was sur­prised to learn recently that the sav­ings rate in Aus­tralia had been revised up to 10% by the RBA. Is this a sig­nif­i­cant change in behav­ior and how does it run counter to the debt con­cerns. Is this level of sav­ings ade­quate to stymie the debt over time?
    http://www.rba.gov.au/speeches/2010/sp-ag-081210.html
    I agree that Swan (and the oth­ers) seem to be run­ning in the wrong(populist) direc­tion and sav­ings rather than lend­ing should be boosted.
    Bill

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  • Here’s an inter­est­ing arti­cle on Aus­tralia just referred to me by a cor­re­spon­dent:

    http://seekingalpha.com/article/246486-australia-the-last-epic-bubble-formulating-a-coherent-investment-strategy