Rudd's insane and destructive credit policies

Leftists are experts at destruction in the name of doing good so this is not entirely a surprise

POPULIST policies, almost by definition, are damaging in the long term. But the “responsible lending” policy announced last week by Superannuation and Corporate Law Minister Nick Sherry enjoys a distinction rare even among the most populist of policies. It will be damaging, perhaps disastrous, in the short term as well as the long term. Most disturbing, it will significantly harm those it seeks to help: the working families so beloved of the Rudd Government.

As usual, the key features of this shambolic policy sound heart-warming. “For the first time, Australia will have laws that prohibit irresponsible lending to consumers by all types of credit providers,” Sherry says. The new laws will require lenders and finance providers to assess a borrower’s needs and whether a proposed loan is “not suitable” for those needs. New penalties, including civil and criminal charges, will be imposed on lenders or brokers who approve or recommend unsuitable loans.

What could be wrong with such noble aims? Let’s start with the short-term costs. These provisions work a revolution in lender liability. Traditionally, the law has assumed the borrower is best placed to assess their own interests. Now, however, a duty is placed unilaterally on the lender to ensure the borrower can repay. There is no obligation on borrowers to look after their own interests. Indeed, the legal effect of these new laws will almost certainly be to relieve borrowers of any duty to look after their own interests.

Even if you accepted that as a good policy, this is a radical shift. The result will be an immediate and costly overhaul of basic lending practices and processes. At a time when the Rudd Government is desperately seeking stimulus, the wheels of credit will be gummed up. Banks will have to slow credit to a trickle while they assess what certificates from lawyers, accountants and employers will be required before they can safely lend.

Lenders fearful of criminal sanctions will become much more risk averse, strangling the flow of credit even to quality borrowers. The increased costs of making loans will be passed on to all borrowers, but will hurt those who can least afford it the most. Some modern lending practices integral to today’s economy will simply become unlawful.

The mad rush to “do something” demonstrates the Rudd Government’s inexperience: it simply doesn’t get modern lending. It plainly doesn’t realise that vast amounts of consumer credit are advanced on the basis of automated credit scorecards generated by computer programs. It is not economically feasible for banks and credit providers to assess individually the thousands of applications for small amounts of credit and debts they receive every day. So they use sophisticated software utilising vast data banks of aggregated credit histories to conduct those assessments.

Well, goodbye to all that. Individual credit assessments will be required now, even though modern evidence is that computerised credit scoring predicts credit card default at least as well as individual assessment. At a time when the Prime Minister and the Treasurer are begging consumers to go shopping, Sherry is cutting up consumers’ credit cards with his crack-a-nut-with-a-hammer policy.

Another paradox is that although these laws are intended to exclude most forms of business lending, they do cover loans to investors in residential real estate. So while the Rudd Government says it seeks to stimulate the building industry, these proposals will significantly reduce the flow of credit to real-estate investors. Also at risk will be the loans that support the first-home owners grant. Banks are already concerned that these grants are being used by young borrowers with no savings history and little ability to withstand an increase in interest rates, let alone a bout of unemployment. So lenders may, under the responsible lending laws, commit a criminal offence if they lend to risky borrowers.

Sherry has therefore neatly detonated the pillar that supports the Rudd Government’s central economic policy: spending our way out of a recession.

This inconsistency may seem lunatic enough. Now consider the longer-term implications of Sherry’s proposals. By shifting the burden of credit risk from borrower to lender, the new laws threaten to repeat the policy mistakes of the subprime lending fiasco in the US. Though politicians rarely acknowledge this, a chief contributor to that crisis was the Clinton administration’s policies of emphasising borrowers’ rights to home loans (especially among socially disadvantaged groups) without doing anything about traditional US practices requiring home loans to be limited in recourse to the mortgaged property. Limited recourse loans remove the need for the borrower to borrow responsibly. And now Sherry is trying to impose that same culture of borrower rights without responsibility in Australia. We now know where that leads.

Regrettably, when Australia has its own Sherry-induced subprime crisis one day, our banks will be in no position to rescue us. While the prudent banking practices of our banks have, to date, meant we have stood strong in a world of insolvent banks, when riskless borrowing leads to inevitable economic problems, our banks will be in deep trouble. Their loans will have been rendered unenforceable by armies of clever lawyers and courts desperate to help the little guy.

Could this foolish legislation be improved? Unfortunately, the populist appeal of this policy makes it unlikely the Government will do the sensible thing and dump this ill-considered plan. However, there are at least two things that would mitigate the folly.

First, the Rudd Government must surely permit so-called positive credit reporting. Amazing as it may seem given the Government’s stated desire to ensure responsible lending, Australian lenders are denied access, on privacy grounds, to large amounts of readily available information about a borrower’s creditworthiness. Lenders can access central databases of so-called negative credit information: for example, whether the borrower has defaulted on loans or gone bankrupt. Yet governments have steadfastly refused banks and lenders access to the sort of positive credit information available in many other countries about a borrower’s repayment history.

Given that such information is a critical predictor of defaults, this is nothing short of Kafkaesque. On the one hand, the Rudd Government demands lenders lend responsibly. On the other it denies lenders the information that would enable them to do precisely that.

The second, and most critical, change is to re-establish a sense of personal responsibility in borrowers. Borrowers have a duty to themselves and their families to take all the steps they reasonably can to ensure they borrow responsibly and that they give lenders the accurate information and assistance they need. These new laws should explicitly impose those duties on borrowers. Not to do so would be the height of irresponsibility.

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NSW government refuses to reform its disastrous ambulance service

The untouchability of government employees once again

THE controversial head of the NSW Ambulance Service will not be sacked despite a damning parliamentary inquiry that found he had presided over a decade-long failure to deal with bullying and harassment within the organisation that led to at least nine suicides.

The Minister for Health, John Della Bosca, said the tenure of the ambulance chief executive, Greg Rochford, had been reviewed in January three months after an upper house committee called for an urgent investigation into his performance.

In announcing the Government's response to the 45 recommendations made in the report, Mr Della Bosca said yesterday he was committed to a statewide "culture change and improvement program" to end endemic bullying in the service. However he refused to take direct responsibility for the service or the performance of its chief executive.

Mr Rochford, whose resignation has been called for repeatedly by the Health Services Union, will keep his job, although a committee of long-time current and retired NSW public servants will be appointed to oversee his efforts to resolve disputes and address workplace behaviour. And Mr Rochford will continue to be responsible for the management of senior ambulance executives, despite the report finding they were a "nepotistic old boys' club" who swept claims of bullying and harassment under the carpet for 10 years.

Phil Roxburgh, whose revelations about bullying at the Cowra ambulance station sparked the inquiry, said Mr Rochford and other senior executives should have been removed. "To find out these people are still in the same positions, offering no more than lip service [to anti-bullying policies] is very disheartening and disappointing," said Mr Roxburgh, who is now manager of the Moruya ambulance station. "I do not want to see our only chance for a change in culture blown."

A paramedic, Christine Hodder, the first woman to work at the Cowra ambulance station, took her life in April 2005 after years of bullying. Mr Roxburgh, her former manager at Cowra, went on stress leave after he was harassed for supporting her.

Mr Della Bosca said many of the recommendations from the inquiry were already being dealt with by the Government including the appointment of an extra two investigation staff to ensure serious matters were dealt with rapidly, a "healthy workplace manager" to deal with grievances and a compulsory "respectful workplace training" program for all staff. "Change on this scale will always create workplace tensions and it's a credit to the workforce that the healthy workplace initiatives are being embraced," he said.

The committee chairwoman, Robyn Parker, a Liberal member of the Legislative Council, said some issues raised in the six-month-long inquiry, such as wages and conditions, had since been resolved following a hearing in the NSW Industrial Relations Commission. However, the Government had not explicitly accepted the majority of recommendations in its response but used "weasel words" to claim issues were already being addressed, without any evidence of change.

Ms Parker said she had been getting numerous letters from people saying "nothing has changed, the culture and the environment is as toxic as it was during the inquiry". "Unless there is a massive cultural change starting from the very top of the service, how can officers trust the Rees Government?"

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Federal police a "shemozzle"

THE lawyer for former terror suspect Mohamed Haneef says the resignation of Australia's top cop should be seized as an opportunity to correct mistakes committed on his watch. Australian Federal Police Commissioner Mick Keelty is to step down from his role in September. Barrister Stephen Keim represented Indian-born Dr Haneef, who was wrongly charged and detained for a month in 2007 over suspected links to the UK bombings. Dr Haneef is now working in Dubai but is seeking compensation from Australian authorities.

"We think that the news that Mr Keelty is stepping down provides an important opportunity for the Commonwealth Government to correct the built-up mistakes from the past,'' Mr Keim said. "It was a great concern of ours that even after the collapse of the case the AFP did everything they could to attack (Dr Haneef's) reputation.''

He said while the Clarke report into Dr Haneef's case exposed specific flaws with the AFP, the agency's problems went "much deeper''. "The Clarke report revealed that the organisation was just a shemozzle,'' Mr Keim said. "One of the problems with Mr Keelty is that in his public statements over the years he has not shown any ability to acknowledge error on his part or the organisation.''

Mr Keim was publicly criticised by Mr Keelty for his leaking of a 142-page police transcript to the media, but he was later cleared of professional misconduct and given a civil rights award.

He said any overhaul of the AFP needed to look at the powers and resources of the ombudsman to oversee its operation and an improvement in the AFP's release of information to the public.

Mr Keim said the chief's resignation also provided an opportunity to look at the way the AFP dealt with cases involving Australians who potentially faced the death penalty for crimes in another country. He said Scott Rush could have avoided the death penalty had the AFP taken the advice of Rush's family and stopped him from boarding a plane to Bali. One of the so-called Bali Nine, Rush, 23, was arrested at Bali's airport in April 2005 with 1.3kg of heroin taped to his legs and is now on death row.

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Some boatpeople seeking asylum for second time

They know that everything has changed and that the new Leftist government will "punish" them by giving them money to go shopping and will listen sympathetically to any pack of lies. I kid you not: Money to go shopping is one of the first things they get when they arrive, plus better accommodation than they have ever had before

AT least a dozen of the asylum seekers who have arrived in the current wave of boatpeople are return visitors, some having been granted temporary protection visas and others having been rejected after arriving on the now-infamous MV Tampa. Figures supplied by the Immigration Department revealed that between October and January, four of those who arrived by boat had been in Australia previously on temporary protection visas. The figures will reignite the debate about the effectiveness of the controversial visa scheme, which the federal Government abandoned but which the Coalition has suggested should be restored.

A further five boatpeople in the recent influx had been detained on Nauru as part of the now-defunct Pacific Solution and were voluntarily repatriated after their claims for protection failed. Of those five, four had sailed for Australia and been rescued by Norwegian freighter MV Tampa, which arrived in Australian waters in 2001, becoming a flashpoint election issue and leading to the Howard government creating the Pacific Solution of offshore processing centres.

The department revealed yesterday that since January, a further three boatpeople who had arrived were known to have either been in Australia previously or been detained on Nauru. The figures mean that at least 12 of the asylum seekers to have journeyed to Australia in the current wave of arrivals have tried, or succeeded, in coming to Australia before. A spokeswoman for the Immigration Department said last night it was possible the number could climb because some of the 231 asylum seekers who had arrived in Australia since January had still to be processed.

There have been 17 unauthorised boat arrivals since the Government announced in August a softening of detention policies.

The Coalition has said changes to Australian policy, in particular the abolition of TPVs, have contributed to the spike by conveying the impression Australia is now a soft touch. TPVs allowed asylum seekers to stay in Australia for three years, requiring them to demonstrate a need for protection on an ongoing basis. They were abolished in May last year, fulfilling an election pledge by Labor.

Malcolm Turnbull has said given the current surge, the Government must consider restoring the controversial visa. But he has stopped short of committing the Coalition to such a move amid fears it could reopen a damaging rift in his party between moderates, who opposed the visa - and hardliners. The Government has rejected the Coalition's arguments, saying a worldwide surge in refugees is behind the recent influx.

Yesterday, Refugee Council president John Gibson said it was difficult to know exactly why refugees might have chosen to leave Australia without assessing their individual cases. But he suggested one reason might be the visas themselves. "There have been some cases where people have been given protection but have returned home out of concern for their families," Mr Gibson told The Australian. "One of the causal functions in the increase in the number of people aboard the boats was the fact that TPVs didn't allow family reunions."

Opposition immigration spokeswoman Sharman Stone said the Coalition would be watching the processing of two-time asylum seekers very closely. "If they haven't experienced extreme trauma in the intervening years since their first rejection, then the Coalition will demand to know how the criteria for refugee selection has changed," Dr Stone told The Australian.

Mr Gibson said a change in the political or physical situation in a refugee's home country might also account for a decision to return or reapply.

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ANOTHER CLIMATE ROUNDUP

Two current articles below

Science has become subservient to political expediency

THE notion that human activity has an alarming influence on climate is based on Intergovernmental Panel on Climate Change reports and spurious claims about a scientific consensus. Independent scientists who question these claims are accused of being in the pay of the energy industry and of believing that the notion of man-made climate change is a conspiracy.

To the best of my knowledge, no climate conspiracy has ever existed. But another force has driven science into its present parlous state where the output of computer software is held in higher regard than observational data, where marketing spin is more important than fact and evidence, and where a trenchant defence of the notion of man-made global warming is seen as paramount.

The single, pre-eminent force driving this distortion of science originates in the once-august UN. The UN's Framework Convention on Climate Change set the tone by linking climatic variations to the air and water pollution issues that it was quite reasonably addressing at the time. It ignored recognised natural climate forces and declared that recent variations in climate were attributable to human activity. Although the IPCC, which was set up by the UNFCCC to investigate the matter, backed away from the assertion that all modern climate change is man made, it nonetheless operates under a charter that considers only the risks of "human-induced" climate change.

Raising these matters under the UN banner was a political masterstroke because it drew national governments into the process. UN bodies have a reputation for political allegiances rather than peer-group pressure but the result is much the same, and even more so when government appointees, often fervent believers in the cause, speak passionately and seem backed by UNauthority.

No individual or government had the temerity to stand up to the UNFCCC or IPCC and say, "we don't agree". Some stridently endorsed the claims, and many interpreted the statement, "we don't know what else might be causing climate change, so it must be human activity" as proof positive rather than admission of incomplete knowledge.

The IPCC has now delivered four scientific assessment reports, each accompanied by an increasingly urgent call to action regarding climate change driven by greenhouse gases. National governments, which are signatories to the UNFCCC, have almost without exception bought into the alarm, modulating it only to accord better with their own political philosophies. This, combined with the allocation research funding according to policy relevance, means governments now attempt to predetermine the findings of scientific research.

For many years climate researchers have understood that their proposals will only be funded if they are pitched in line with government policy. Even worse, unless some aspect of their results appears to perpetuate government thinking, renewal of their funding is unlikely. Other climatologists are acutely aware of the potential consequences for their employers and their own employment prospects should they speak out in criticism of the dominant alarmist paradigm. Scientists who have criticised the hypothesis of human-caused climate change have had their funding curtailed or employment terminated.

Climate modellers have been very aware that their expensive and powerful computing facilities would be supported only if their research produced alarmist climate predictions. This notwithstanding, these models often produced results that were not in good agreement with historical data, perhaps because they poorly replicated or even omitted variations in climate.

These deficiencies and more have been papered over by reviving outdated and inaccurate research about the warming effect of carbon dioxide. The numbers still didn't add up but the inclusion of some "positive feedbacks" masked the problem, and the models were declared "proof" of a significant human influence on climate.

The peer-review process was originally a sanity check for the editors of scientific journals but has always been open to abuse by reviewers who wish to support or suppress a particular line of argument. The recent narrow focus of climate research funding has caused an outburst of scientific papers that support the IPCC's alarmist beliefs and relatively few papers that contradict it. Reviewers with vested interests suppress contradictory papers and support the "official" line.

Vested interests now dominate climate science. Whether climatologists, their employers and other people believe the government-approved line has become irrelevant, because they all wish to retain an income stream and whatever reputations they've established. These people advise governments, which subsequently set policy and research funding regardless of any contradiction with observational data.

Climate science is no longer an impartial truth but a slave to the yoke of politics and opportunism. If this continues, society will be the inevitable loser.

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Rudd's backdown from Warmism needs to be more open

DESPITE the Government announcing it has backed away from early action to reduce carbon emissions, the Prime Minister's website continues to say, "The cost of inaction on climate change will be much greater than the cost of taking action now."

Like others working for Kevin Rudd, his website managers can't keep up with his policy changes. Costs of "inaction on climate change" have just assumed a new meaning. At the very least the PM, in postponing the carbon trading tax, is acknowledging that immediate measures to reduce emissions would be costlier than doing nothing.

But his proposed watering down of the already diluted proposals has all the hallmarks of Napoleon's retreat from Moscow.

Ross Garnaut, Rudd's hand-picked consultant on global warming policy, had already said that the white paper was irresponsible in proposing a free supply of emissions to electricity producers and energy intensive firms. Now Rudd plans to increase that supply further.

Garnaut, Rudd and Penny Wong all talked about failure of a meaningful international agreement on emission reduction at Copenhagen later this year as being unlikely. Now that such failure is a certainty, the costs of Australian action to the economy are becoming clearer even to mystics who see only evil in production. Hence the PM's humiliating backdown. But, never one to acknowledge his own misjudgments, Rudd is spinning this as a means to buying the Opposition's support and as some sort of hiatus to remain in place only while the global economic crisis runs its course.

Doubtless Rudd's postponement of the planned new carbon tax is a prelude to an attempt to replace it with a tax on households to help defray some of the costs of his reckless cash giveaways.

What is increasingly clear is that there will not be a carbon emissions trading scheme.

Australia has an energy-intensive industry structure, a coal-based electricity generation industry and coal and gas as our export mainstays.

Capitalising on our natural advantages in fossil fuel energy has required forging supportive institutional structures, a process that has taken many decades. Our carefully developed political and administrative framework has allowed the creation of an energy supply industry that is the backbone of our present living standards. To become one of the world's lowest cost energy suppliers has entailed marrying our resource endowment with entrepreneurial and workforce skills. All this would have been jettisoned by a tax squarely aimed at destroying that productive efficiency fostered by low-cost energy.

Strongly performing industries will be at a premium in a world economy that's likely to be facing sluggish conditions for many more years. Even the most complacent optimists can no longer take as given the income derived from our present industry structure. Compounding the effects of the global economic meltdown's external assault on living standards with some purpose-made domestic measures is now revealed as a sledgehammer blow to the welfare of all Australians.

Formally announcing a total abandonment of the carbon trading scheme must be the next step. Such action is necessary, and the sooner the better as the prospect of the proposed tax hangs like a sword of Damocles over any prospective investment decisions involving energy. Australia can never afford to carry such baggage and the global financial crisis merely brings this home.

Inadvertently, the PM's website remains spot-on in saying, "There is no greater challenge now facing our world and our nation than dangerous climate change." The challenge is to his Government's credibility at having commissioned endless reports, undermined the integrity of Treasury forecasting and created a monster department of hundreds of globe-trotting drones to promote phantom opportunities that a carbon tax would offer Australia. The "dangerous climate change" is the shift in the climate of business opinion and community opinion more generally, as the reality of a crippling new energy tax looms.

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